The three different methods of calculating national income are production ,income and expenditure method. ... Now the total income earned is spent on the output produced in the economy and therefore the income equals the expenditure in the economy. And so we call it The circular flow of income.

Introduction

National income is the total value of goods and services produced within a country in a particular time period. It is measured using three main methods: the production approach, the income approach, and the expenditure approach. While all three methods aim to measure the same concept, there may be variations in the results obtained due to different data sources and calculation techniques.

Differences in data sources

Each method of measuring national income relies on different data sources, which can lead to variations in the results obtained.

1. Production approach: This method calculates national income by summing up the value added at each stage of production. It relies on data from the production side of the economy, including information on output, intermediate consumption, and value-added by different sectors. However, data collection for this approach can be challenging, especially in developing countries or informal sectors where data may be incomplete or unreliable.

2. Income approach: This method calculates national income by summing up the incomes earned by individuals and businesses in the economy. It includes wages, salaries, profits, rents, and other forms of income. The income approach relies on data from the income side of the economy, such as tax records, corporate financial statements, and household surveys. However, there may be discrepancies in the data due to underreporting or misclassification of income sources.

3. Expenditure approach: This method calculates national income by summing up all the expenditures on final goods and services within the economy. It includes consumption, investment, government spending, and net exports. The expenditure approach relies on data from the demand side of the economy, such as household surveys, business surveys, and government records. However, data collection for this approach can also be challenging, particularly for informal or illegal activities that may not be captured in official records.

Calculation techniques

Even if the same data sources are used, variations in the calculation techniques can result in differences in national income estimates.

1. Base year: The choice of base year for calculating constant prices can affect the results obtained. Different base years may have different weights assigned to different sectors or products, leading to variations in the estimated national income.

2. Deflators: The use of different deflators to convert nominal values to real values can also introduce variations. Different deflators may have different inflation rates for different sectors or products, affecting the estimation of national income.

3. Scope of coverage: The scope of coverage for each method can vary, leading to differences in the estimated national income. For example, some methods may exclude certain sectors or activities, such as the informal sector or non-market production, which can result in discrepancies.

Conclusion

While the three methods of measuring national income aim to capture the same concept, variations in data sources and calculation techniques can lead to differences in the results obtained. The production approach focuses on the value added at each stage of production, while the income approach emphasizes the incomes earned by individuals and businesses. The expenditure approach, on the other hand, looks at the final expenditures on goods and services. It is important to consider these variations when comparing national income estimates obtained through different methods.

Yes,the national income come from all three methods is same.