Balbharati solutions for Economics HSC 12th Standard Maharashtra State Board
Chapter 7. National Income
2. Explain the income method and expenditure method of measuring national income.
Answer: -
Income Method:
This method of measuring national income is also known as the factor cost method. This method estimates national income from the distribution side.
GNP can be treated as the sum of factor incomes, earned as a result of undertaking the economic activity, on the part of resource owners and reflected in the production of the total output of goods and services during any given time period.
Thus, GNP, according to income method, is calculated as follows:
NI = Rent + Wages + Interest + Profit + Mixed Income + Net income from abroad.
NI = R + W + I + P + MI + (X–M)
Expenditure Method:
This method of measuring national income is also known as the Outlay Method.
According to this method, the total expenditure incurred by the society, in a particular year, is added together. Income can be spent either on consumer goods or on capital goods. Thus, we can get national income by summing up all consumption expenditure and investment expenditure made by all individuals, firms as well as the government of a country during a year. Thus, GNP according to the expenditure method, is calculated as follows:
NI = C + I + G + (X–M) + (R–P)
