Summary - Intermediate

Calculation of National Income with Example


1. Product Method (Value-Added Method)
This method calculates national income by adding the value added at each stage of production.
Formula:
National Income = Sum (Gross Value of Output - Intermediate Consumption)
Example:
Consider a simple economy with three sectors:
Agriculture: Gross Output = INR 500, Intermediate Consumption = INR 200, Value Added = INR 300
Manufacturing: Gross Output = INR 800, Intermediate Consumption = INR 400, Value Added = INR
400
Services: Gross Output = INR 700, Intermediate Consumption = INR 300, Value Added = INR 400
Total National Income = INR 1,100 crores


2. Income Method
This method adds up all incomes earned by factors of production (wages, rent, interest, and profit).
Formula:
National Income = Wages + Rent + Interest + Profit + Mixed Income
Example:
Wages = INR 500 crores
Rent = INR 200 crores
Interest = INR 150 crores
Profit = INR 250 crores
Mixed Income = INR 100 crores
Total National Income = INR 1,200 crores


3. Expenditure Method
This method calculates national income by summing up all expenditures made in the economy.
Formula:
National Income = C + I + G + (X - M)
Where:
C = Private Consumption, I = Investment Expenditure,
G = Government Expenditure, X-M = Net Exports (Exports - Imports)
Example:
C = INR 600 crores
I = INR 300 crores
G = INR 400 crores