National Income is the total value of all final goods and services produced by the country in the given accounting year.
- Circular flow of income and expenditure exists within an economy, where factor income is earned from the production of goods and services, and the income is spent on the purchase of produced goods.
- Thus, there are three alternative methods of computing national income.
i) Product/ Value Added Method
ii) Income/Factor income Method
iii) Expenditure Method Product/Value Added Method
This approach is also called output method or inventory method as it measures income from the output side.
In this approach, the specific value of the flows of output are added up arising from each sector of the economy.
As per this method, the economy is divided into different industrial sectors to show the contribution made by each sector to GDP. Then, the national income is calculated by adding the value of final goods from all the sectors of an economy during a given accounting year.
Final goods are those goods which are directly consumed and not used in the further production process.