Three methods/approaches to the computation of national income.

Three methods/approaches to the computation of national income.

 

Output /product /value added approach

It involves   summing   up the contributions   (value added) of all firms or sectors at each stage of production   of final goods and services   in the economy.   This   is done   in order   to avoid   double   counting.     Value added is the contribution   made to the value of the final product at each stage in the production   process

 

Income approach

Here the incomes received by factors of production are added. Such incomes include rent, salaries, wages, interest and profits in a given period usually a year.

National income = wages (w) + rent(r) + interest (i) + profits (p)

Expenditure approach

Here we add up the value spending on all final goods and services. Such expenditures include consumption, investment, government expenditure and net exports in a given period usually a year

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