Monthly Archives: June 2016

National Income Accounting Part 1 to 4

This part is asked specifically in Paper II, Topic 2,  of Indian Economic Service exam in addition to Social Accounting. But my advice is, even though it is not directly given in the syllabus of IAS Economics syllabus or UGC-Net Economics syllabus, there is no harm in preparing it, as we have already discussed in our earlier post, questions were asked in Macro part of IAS Economics paper, which were not given in the syllabus directly. Moreover, it is a very simple topic, so nobody should have  a problem preparing it.

In this series of videos (Video 1 to 4), following is discussed :

Three methods of measuring National Income

  1. Product Approach
  2. Income Approach
  3. Expenditure Approach

Product Approach measures economic activity by adding the market value of goods and services produced, excluding intermediate consumption

Income Approach measures economic activity by adding all income received by producers of output

In Income approach, eight major sources of income are discussed, namely, Compensation of employees, proprietor’s income, rental income of persons, Corporate profits, Net interest, Taxes on production and imports, Business current transfer payments (net), current surplus of government enterprises

In addition to above, statistical discrepancy, depreciation, net factor payments are also accounted for to obtain GDP.

Expenditure Approach measures the economic activity by adding the amount spent by all ultimate users of output

Within the expenditure approach, four major components of GDP are discussed, namely, consumption, investment, government purchases of goods and services and Net exports of goods and services

Then we have discussed, why are three approaches equivalent? Why should we get the same answer from all the three approaches?

You can see a demo version of this video on youtube here

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