Methods of Measurement of National Income




Importance of measuring National Income:

  • Economic Policy:

National income figures are an important tool of macroeconomic analysis and policy. National income estimates are the most comprehensive measures of aggregate economic activity in an economy.

  •  Economy’s Structure:

National income statistics enable us to have clear idea about the structure of the economy. It enables us to know the relative importance of the various sectors of the economy and their contribution towards national income.

  • Inflationary and Deflationary Gaps:

National income and national product figures enable us to have an idea of the inflationary and deflationary gaps. For accurate and timely anti- inflationary and deflationary policies, we need regular estimates of national income.

  • Distribution of Grants-in-aid:

National income estimates help a fair distribution of grants-in-aid by the federal governments to the state governments and other constituent units.

  • Defence and Development:

National income estimates help us to divide the national product between defence and development purposes. From such figures we can easily know how much can be spared for war by the civilian population.

  • Public Sector:

National income figures enable us to know the relative roles of public and private sectors in the economy. If most of the activities are performed by the state, we can easily conclude that public sector is playing a dominant role.

Methods of Measurment of National Income :
1) Output Method/Product Method 
2) Income Method 
3) Expenditure Method.

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