ECONOMICS SS3

WEEK 3

Methods/ Approaches To The Measurement Of National income

• 1. Income Approach: This is the aggregation of the rewards to the factors of production which are expended in the production activities. This takes the form of Rent for land wages for labour interest for capital and profit for entrepreneurship.

• N.I= R+W+I+P. It is also called national income at factor cost.

• 2. Expenditure Approach: This method measures the national income by computing the total expenses made on consumptions and investments made by individuals firms and government during an economic year. For a close economy, national income with this approach is

• N.I= C+ I+ G and for an open economy , • N.I= C+I+G+X-M

• C = household consumption.• I= Business investments• G= Government expenditures• X= exports , m= imports•

• Output Approach: This is a method of calculating the monetary. Value of all the goods and service produced in a country by the various sectors of the economy during a year. These sectors include the agricultural sector, service sector mining sector. The net contributions of these sectors over a period of time usually a year constitutes what we referred to as the national income using expenditure approach (value added approach.

• Net Contributions is defined as the difference between the final outputs of a sector and the total inputs used in the total inputs used in the sector.

Assignment

• Briefly explain five problems facing the computation of natural income.