Tuesday, August 25, 2009

National Income

Professor Marshall defines National Income as “Sum of all the physical goods produced and services provided by utilizing the natural resources of the country with the help of labour and capital. In addition to this the net income from abroad is also included. Accordingly, the National Income is the summation of all the goods produced and services is the summation of all the goods produced services provided and the net income from abroad.”

According to present ideas, National Income may be defined as the aggregate factor income i.e. earning of labour and property which arises from the current production of goods and services by nation’s economy.

Professor Keynes has used three methods or approaches to define National Income.

1. The sum of all expenditures which are made on consumption and investment goods is known as National Income. Such definition of National Income, on the one side, considers total output of the economy as National Income. While on the other side the total expenditures are accorded as National Income, this method of defining National Income is known as Income-Expenditure Method of National Income.

2. The sum of incomes of all the factors of production engaged in production process is also known as National Income. This method is define National Income is known as National Income at factor Prices Method.

3. If we subtract the cost of production from the total output produced in the economy we will get National Income. This method to define National Income is known as subtraction of costs of production from aggregate output method.

After Keynesian thinking, post Keynesian economists defined National Income in a better way. They say that National Income is like three flows which flow at the same time. These flows are (1) Income (2) Outputs (3) Expenditures.

It is explained as “When goods and services are produced in the economy, the factors of production (who produce the goods and services) will get the payments. Then the factors will spend these incomes on consumption and investment goods” All this denotes that (1) The summation of produced goods and services represents National Income (2) The summation of all incomes earned by the factors represents National Income (3) Summation of all expenditures made by the factors of the production is also known as National Income.


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