Answer :

Through the estimation of the national income, one could determine the economic condition of a country. Increase in the production will lead to the economic prosperity of the country. Increase in the production will lead to an increase in the factors for a production like land, labour, capital, and organisation. Thus, the increase in rewards such as rent, wages, interest, and profit will lead to increased consumption and investment. Production, income, and expenditure are interconnected with each other. The main methods of estimating national income are as follows:

Product method – product method help us to evaluate the contribution of all the sectors in the national economy. Under this, the money value of goods and services produced by the primary, secondary, and tertiary sectors are calculated to estimate national income. It also helps us to know which contributed the most to the national income.


Income method – Income is the reward obtained for the factors of production. Under Income method, rewards such as rent, wages, interest, and profit are calculated to estimate national income. This helps us to analyse the contribution of each of these factors towards the national income.


Expenditure method – the expenditure earned by the individuals, firms and government in a particular year is used to estimate the national income. The inclusion of consumption expenditure, investment expenditure and government expenditure provides the total expenditure.


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