Question

Explain clearly the income methods of estimating national income.

Answer 1

The national income is calculated using the income approach from the distribution side. This approach entails totalling the net income payments that a nation’s inhabitants received during a specific year. To put it another way, net income obtained through transfer payments is not included in the total amount of net income that accrues to the factors of production through net interest, net profit, net wages, etc. According to the income approach, GNP is therefore calculated by adding up all of the factor income that goes into creating the national product.

Estimation of factor income: The number of units of each input used and the income paid to each unit can be multiplied to get the amount of money paid by each producing company. The resultant will be the income generated by the enterprises. For instance,

1. Net national income can be obtained by adding net factor income from abroad to net domestic income.
   Net National Income = Net Domestic Income + Net Factor Income from Abroad
2. Gross national income can be calculated by adding depreciation to net national income.
   Gross national Income = Net National Income + Depreciation
3. Net national product at market prices can be computed by adding net indirect taxes to that of net national income.
   Net National Product at Market Prices = Net National Income + Net Indirect Taxes