National Income Determination Term Paper Example | Topics and Well Written Essays - 1500 words

National Income Determination - Term Paper ExampleTwo honey oil measures of income argon GNP (gross national product) and GDP (gross domestic product). GDP measures the total value of output (goods and serve) produced by the brokers of production located within the countrys boundary in a year. The factors production may be protested by any one - citizens or foreigners. GNP is the total value of output (goods and work) produced and income received in a year by domestic residents of a country. It includes profits earned from capital invested abroad. While winning them both together we get,Economically speaking when the demand for commodity goes up the production increases. Income leads to expenditure which again leads to production. Thus production, income and expenditure are mutually related economic activities are related to these 3 storey. establish on this 3 method actings are used to calculate national incomeNational incomes measurement is necessary for a country due to v arious purposes it helps in projection of future course of economy, estimates economic development and how remote have they been achieved, helps government to design suitable development policies, helps firms in forecasting the future demand of their product, tells the theatrical role of various sectors to national income and facilitates international comparison.Various jobs rise while measuring national income. ... For e.g. we can not add kilograms of wheat, to meters of cloth, to tones of coal in physical terms. (G.F. Stanlake, 1995). Thus the only common measure is money. Secondly when goods and serve have no market price values difficulties are encountered like in public services such as defense, law and order, education and health services. The solution adopted is to measure their values at cost. Then there are problems with the goods and services which people provide for themselves like farmers consume some of their own output or much of repair and improvement work is don e by do it yourself basis. Rough estimates are used in these cases in measuring national income. Double counting is yet other problem as the output of one firm are the inputs of other firm two ways to outfit this is either by adding value of final product or totaling the values added at every stage of production. National output is measured at times in terms of factor cost, using market prices could be misleading this is another problem associated with measurement of national income. Measuring national incomeThree incompatible methods are used based on different views of national income. Firstly the production method in which national income is viewed as the total output from domestically owned resources during the course of year. This is the most direct method where the output figures of all the firms in the country are taken. Exports are included but imported materials and services are excluded (this is automatically done as values added in the country are taken). This will hur l us GDP and to it add NPIA.Income method the second approach is viewed in terms of incomes earned by factors of production engaged in producing the national output. As the total product is valued at factor cost,