National income denotes the total goods and services produced in a financial year. The amount of money that the government receives is called national income and the amount that is spent is called expenditures. The calculation of national income is a major topic in economics. If you are working on an economics essay and want to know “How to Calculate National Income?” easily, then read this article attentively.
Here the economics essay help providers have explained the 3 easiest methods of calculating national income.
Let’s go.
- Value-Added Method: The value-added method works on the basic fundamentals and provides an easy approach to calculate national income. It is based on the values that are added to a product at each production stage. First of all, calculate the net value added to the factor cost (NVAFC), and at the end, subtract the consumption of raw materials and capital, and net direct taxes.
Value-added method formula:
National Income= (NDPFC) + Net Factor Income from Abroad
- Expenditure Method: In the expenditure method, you need to calculate the total expenditures. These expenditures can be made by the government, organizations, local bodies, residents, etc.
To calculate the national income from the expenditure method, you need to be familiar with the following components.
- Purchase of consumer goods, products & services by residents and households (C)
- Expenditures that are done by the government (G)
- Investment in enlarging the assets, stocks, and goods of a business (I)
- Net exports (NX)
National Income by Expenditure Formula= C+G+I+NX
- Income Method: The income method directly focuses on calculating the production and the behavior of the market. There can be seen in any type of production in different kinds of industries. E.g., land, labor, capital, etc. Income can also be generated in many ways, such as rents, wages, salaries, profits, dividends, capital gains, and taxes.
First, we have to calculate the final national income then add the total income generated by the sources. Sometimes, there is one more term that comes in this process i.e., mixed-income.
National Income by Income method = Rent + Wages + Interest + Profit + Mixed-Income
Summing Up
Mostly, we use 3 types of methods to calculate the national income: Income method, expenditure method, and value-added method. All these methods require and depend on different kinds of elements. Be familiar with the general terms, entries, and transactions. However, if you face a major issue in calculating the national income, then you should take economics essay help.