Question

Write names of three methods of estimating National Income.

Hint:

Remember the three methods by what they measure: Production (what is produced), Income (what is earned), and Expenditure (what is spent). In a circular flow of income, these three must be equal.

Answer 1

Step 1: Understanding the Concept:
National Income is the total value of final goods and services produced by a country in a financial year. The question asks for the three standard methods used to calculate it.

Step 2: Detailed Explanation:
The three methods of estimating National Income are: \begin{enumerate}[label=\arabic*.] \item Product Method (or Value Added Method): \begin{itemize} \item This method measures national income by estimating the total value of all final goods and services produced in the economy during a year. \item It is calculated by summing up the 'value added' by all producing units in the economy. (Value Added = Value of Output - Value of Intermediate Consumption). \item It gives the Gross Domestic Product at Market Prices (GDP at MP). \end{itemize} \item Income Method: \begin{itemize} \item This method measures national income by summing up all the factor incomes paid out by the producing units to the factors of production (land, labor, capital, entrepreneurship). \item It includes Compensation of Employees (wages), Rent, Interest, and Profits. \item It gives the Net Domestic Product at Factor Cost (NDP at FC). \end{itemize} \item Expenditure Method: \begin{itemize} \item This method measures national income by estimating the total final expenditure on the goods and services produced in the economy during a year. \item The components are: Private Final Consumption Expenditure (C), Government Final Consumption Expenditure (G), Gross Domestic Capital Formation (Investment, I), and Net Exports (Exports - Imports, X-M). \item It also gives the Gross Domestic Product at Market Prices (GDP at MP). \end{itemize} \end{enumerate} All three methods, when used correctly, should yield the same value for National Income.

Step 3: Final Answer:
The three methods of estimating National Income are the Product Method (or Value Added Method), the Income Method, and the Expenditure Method.