Which of the following are the methods of calculating national income?
(A) Value added method
(B) Expenditure method
(C) Saving method
(D) Income method
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (D) only
Money spent on final goods is received by the producers, who pay it out as wages, rent, interest and profits. So national income can be counted at three points of this circular flow: as the value added in production, as the expenditure on final goods, or as the incomes paid to the factors. All three give the same figure.
(A) Value added method A method. Also called the product method, it adds up the value added by every producing unit, that is, the value of its output minus the value of the intermediate goods it used.
(B) Expenditure method A method. It adds up the final expenditure on the goods and services produced: consumption, investment, government expenditure and net exports.
(C) Saving method Not a method. Saving is only the part of income not consumed. Adding up savings would leave out all the income that is spent, so there is no such method of measuring national income.
(D) Income method A method. It adds up the factor payments made by the firms: wages, rent, interest and profits.
NCERT (2025-26): “National Income Accounting … In this chapter we will introduce the fundamental functioning of a simple economy. In section 2.1 we describe some primary ideas we shall work with. In section 2.2 we describe how we can view the aggregate income of the entire economy going through the sectors of the economy in a circular way. The same section also deals with the three ways to calculate the national income; namely product method, expenditure method and income method.… …No matter how complicated an economic system may be, the annual production of goods and services estimated through each of the three methods is the same. We have seen that the aggregate value of goods and services produced in an economy can be calculated by three methods.… 2.2.1 The Product or Value Added Method In product method we calculate the aggregate annual value of goods and services produced (if a year is the unit of time).…” |