Methods for Calculating National Income

# Methods for Calculating National Income Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

## SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

1366 videos|1312 docs|1010 tests

## FAQs on Methods for Calculating National Income Video Lecture - SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

 1. What is national income and why is it important?
Ans. National income refers to the total value of goods and services produced within a country's borders in a given time period, typically a year. It is an important economic indicator as it helps measure the overall economic performance and standard of living in a country. National income data is used by policymakers, economists, and analysts to make informed decisions, assess economic growth, and formulate effective economic policies.
 2. What are the different methods for calculating national income?
Ans. There are three main methods for calculating national income: 1. Expenditure Approach: This method adds up the total spending on goods and services in an economy, including consumption, investment, government expenditure, and net exports (exports minus imports). 2. Income Approach: This method calculates national income by summing up all the incomes earned by individuals and businesses, such as wages, salaries, profits, rents, and interest. 3. Production Approach: Also known as the value-added method, this approach adds up the value-added at each stage of production in an economy. It accounts for the value created by each industry or sector and avoids double-counting.
 3. How does the expenditure approach calculate national income?
Ans. The expenditure approach calculates national income by summing up the four main components of spending in an economy: 1. Consumption (C): This includes spending by households on goods and services for personal use. 2. Investment (I): It represents spending by businesses on capital goods, such as machinery and equipment, to increase future production capacity. 3. Government Expenditure (G): This includes spending by the government on public goods and services, such as infrastructure, defense, and education. 4. Net Exports (X - M): This accounts for the difference between exports (X) and imports (M). A positive net export indicates a trade surplus, while a negative net export indicates a trade deficit. The sum of these four components gives the total expenditure in an economy, which is equal to the national income.
 4. What does the income approach consider while calculating national income?
Ans. The income approach considers various types of income earned by individuals and businesses to calculate national income. These include: 1. Wages and Salaries: This includes the income earned by individuals through employment. 2. Profits: It represents the income earned by businesses after deducting costs and expenses. 3. Rents: This includes the income earned by individuals or businesses from the use of their property or assets. 4. Interest: It refers to the income earned by individuals or businesses from lending money or owning financial assets. By summing up all these income components, the income approach calculates the national income.
 5. How does the production approach calculate national income?
Ans. The production approach calculates national income by measuring the value added at each stage of production in an economy. It avoids double-counting by considering only the value added by each industry or sector. To calculate national income using the production approach, the following steps are followed: 1. Identify all the industries or sectors in the economy. 2. Determine the value of output (goods and services) produced by each industry. 3. Subtract the value of intermediate goods and services used in the production process. Intermediate goods are those that are used as inputs to produce final goods or services. 4. Sum up the value added by each industry to get the total value added in the economy. The total value added is equivalent to the national income calculated through the production approach.

## SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

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