Calculation of National Income

Calculation of National Income

Tags:      Gig Economy     Economy     WTO     WTO Public Stockholding     MSP     Economic Growth     Masala Bond     Environmental Performance Index     Forecast of Economic Growth     Functions of the Finance Commission

The formula of National Income calculates the aggregate value of all the items that are manufactured by the residents within the country. It also estimates the income that the country’s residents receive. As per the formula, the estimation of the national income of the country takes into account the sum total of the expenditure of the government, consumption, investments that are made within the nation, net export value and taking away the imports from the net exports, foreign output by the country’s residents and subsequently deducting the domestic production by the country’s residents.

National Income = C + G + I + X + F – D

where,

C = Consumption

I = Investments

X =Net Exports (Exports – Imports)

F = National Resident’s Foreign Production

D = Non-National Resident’s Domestic Production

Step-by-Step Calculation Methods of National Income - The following are the methods to calculate national income using its formula.

1. The first part is the consumption that needs to be identified and computed and that is nothing, but total expenditure incurred by the country’s government in the procurement of goods and services.

2. Infrastructure, capital investments, government employee salary shall form part of total investments made by the government.

3. Total investments that are to be made within the country also need to be figured out.

4. Calculate the export value of goods and services that have been produced within the country.

5. Imports Value needs to be calculated as well so this can be excluded for the calculation of national income.

6. Next, find out the value of national production by foreign residents.

7. Now figure out the value of foreign production by national residents.

8. Now sum up all the values from step 1 to step 4 and deduct values computed in step 5 and step 6 and lastly add value arrived at step 7.