National income can be measured in three methods namely, output method, income method and expenditure method.
Output Method
This approach is the most common and it measures the total of the money value of goods and services produced within a given year.
PROBLEMS OF THE OUTPUT METHOD
- It is difficult to know the exact quantity of goods consumed by the producer himself especially among farmers where their families consume part of their farm produce.
- It is difficult to give 8 thorough money value accounts of government services that are publicly used.
- It is difficult to measure the services of the housewife.
- It is difficult to measure accurately the self-services either in repair or construction of one’s own house.
INCOME METHOD
This approach measures the total value of all the incomes received by people for Producing goods and services within a given year. Under this, the Incomes referred to are wages, salaries, rent, interests and dividends earned by the factors of production. Note that gifts, donations and pensions are transfer payment and they are not counted.
PROBLEMS OF THE INCOME METHOD
- It is difficult to estimate the correct earned income of people that are self-employed.
- Not all the money earned by firms are paid out in dividends to shareholders. Part of the profits are ploughed back for more investment.
- Incomes that are received from people abroad are included while those made to people overseas are subtracted.
- Most houses are owned by the occupants, therefore, it becomes difficult to ascertain the correct rentage for such houses which is supposed to be added in the national income.
EXPENDITURE METHOD
This measures the total expenditure on goods and services within a given year be it consumable or investment goods.
PROBLEMS OF EXPENDITURE METHOD
- It is difficult for people especially the self-employed to keep accurate account of their incomes and expenditures.
- The problem of excluding the value of imports from the national income while exports is added.
- It is difficult to make provision for indirect taxes, which has to be deducted, and subsidies, which has to be added to the national income.