Methods of computing national income.

1. Production approach: This method calculates national income by summing up the value of all goods and services produced within a country's borders during a specific time period. This includes the value of final goods and services, intermediate goods, and value-added by each stage of production.

2. Income approach: This method calculates national income by summing up all incomes earned by individuals and businesses within a country's borders during a specific time period. This includes wages, salaries, profits, rents, and interest earned by households and businesses.

3. Expenditure approach: This method calculates national income by summing up all expenditures made on final goods and services within a country's borders during a specific time period. This includes consumption expenditures, investment expenditures, government expenditures, and net exports (exports minus imports).

4. Value-added approach: This method calculates national income by summing up the value added at each stage of production in the economy. This approach focuses on the value added by each stage of production rather than the total value of goods and services produced.

5. Input-output approach: This method calculates national income by analyzing the interrelationships between different sectors of the economy. It considers the inputs and outputs of each sector and how they contribute to the overall production and income generation in the economy.

Methods of Computing National Income:

There are three primary methods used to calculate national income, each with its own approach:

1. Product (Value-Added) Method:

- This method calculates national income by summing up the value added at each stage of production.
- Value added is the difference between the value of goods or services produced and the cost of materials and services used in their production.
- GDP (Gross Domestic Product) is the total value added within a country's borders, while GNP (Gross National Product) includes value added generated by domestic factors of production regardless of their location.

2. Expenditure Method:

- This method calculates national income by summing up all expenditures made on final goods and services produced within an economy during a given period.
- It includes consumption expenditure by households, investment expenditure by businesses, government spending, and net exports (exports minus imports).
- GDP and GNP can be computed using the expenditure method as well.

3. Income Method:

- This method calculates national income by summing up all incomes earned by households and businesses within a country during a given period.
- It includes wages and salaries, profits, interest, dividends, and rents.
- NI (National Income) is the total income earned by domestic factors of production, while NNP (Net National Product) is the NI minus depreciation of capital.

Relationship between Methods:

The three methods of computing national income should theoretically yield the same result. However, due to data limitations and estimation errors, slight discrepancies may occur in practice.

Uses of National Income Data:

National income data is widely used for various purposes, including:

- Measuring economic growth and performance
- Formulating government policies
- Monitoring the distribution of income
- Comparing economic conditions across countries
- Estimating tax revenues