Measurement of NY

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National income, product method, value added, expenditure and income methods

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Measurement of NY

  1. 1. Measurement of NYMeasurement of NY Prof. Prabha Panth,
  2. 2. 19 Jul 2013 2 There are three methods to measure NY. 1) Output or Product Method, 2) Income Method, 3) Expenditure Method In theory they should all give the same result, because Total expenditure = total income = value of total output.
  3. 3. 19 Jul 2013 3 1. The Product Method:1. The Product Method:  NY is the aggregate money value of the net yearly flow of final goods and services in the economy.  This method gives GDP at market prices.  In this method, the value of only final goods and services of one year is taken.  All intermediate goods and services are excluded,  Using Value Added method, double counting can be avoided.
  4. 4. 19 Jul 2013 4 Example:Example: Item Rs. Wheat 10 a KG Flour 12 a KG Bread 15 Total 37 Item Rs. Value added Wheat 10 a KG Flour 2 Bread 3 Total 15
  5. 5. 19 Jul 2013 5  Capital gains have to be excluded.  Depreciation has to be excluded.  Many goods and services are not marketed, but self consumed.  Agriculture,  Self occupied houses,  Does not include incomes earned from abroad.  Subsidies should be added and indirect taxes deducted to get NY.
  6. 6. 19 Jul 2013 6 2. The Income Method:2. The Income Method:  NY is the sum of all incomes in an economy.  NY = Wages and salaries + Corporate profits + Rent + Interest But does not include: Incomes of Indians living abroad, Self employed, This method gives NY at factor cost, after adjusting for above.
  7. 7. 19 Jul 2013 7 3. Expenditure Method:3. Expenditure Method:  GDP = sum of all expenditures of the four sectors.  HH expenditure + Firms’ expenditure + Gov expenditure + (Exports – Imports) = GDP at market prices.  But following adjustments to be made:  Include value of unsold goods (added to inventory)  Second hand sales to be excluded.  Depreciation to be deducted.
  8. 8. 19 Jul 2013 8  Actually all three methods are used:  For services – Income method is used.  For Government – expenditure method.  For Firms’ and Foreign sector – product method.  Necessary to have proper statistics  Proper accounting procedures.

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