From the following data calculate “National Income” by Income & expenditure methodParameters Amount( Million $)Interest 150Rent 250Govt final consumption expenditure 600Private final consumption expenditure 1200Profit 640Compensation for employees 1000Net Income from abroad 30Net Indirect Tax 60Net Export -40Consumption of fixed capital 50Net Domestic capital formation 340
Question
From the following data calculate “National Income” by Income & expenditure methodParameters Amount( Million $)Interest 150Rent 250Govt final consumption expenditure 600Private final consumption expenditure 1200Profit 640Compensation for employees 1000Net Income from abroad 30Net Indirect Tax 60Net Export -40Consumption of fixed capital 50Net Domestic capital formation 340
Solution
To calculate the National Income by Income method, we need to add up all the incomes generated within the economy. This includes:
- Compensation for employees
- Rent
- Interest
- Profit
- Net Income from abroad
So, National Income (Income method) = Compensation for employees + Rent + Interest + Profit + Net Income from abroad
= 1000 + 250 + 150 + 640 + 30
= $3070 million
To calculate the National Income by Expenditure method, we need to add up all the expenditures within the economy. This includes:
- Govt final consumption expenditure
- Private final consumption expenditure
- Net Domestic capital formation
- Net Export
So, National Income (Expenditure method) = Govt final consumption expenditure + Private final consumption expenditure + Net Domestic capital formation + Net Export
= 600 + 1200 + 340 - 40
= $2100 million
Please note that the two methods give different results. This is because the income method measures the income earned from the production of goods and services, while the expenditure method measures the value of goods and services purchased. The difference between the two is the Net Indirect Tax and Consumption of fixed capital. If we add these to the expenditure method, we should get the same result as the income method.
So, National Income (Adjusted Expenditure method) = National Income (Expenditure method) + Net Indirect Tax + Consumption of fixed capital
= 2100 + 60 + 50
= $2210 million
This is still not equal to the income method, which suggests there may be some statistical discrepancies or errors in the data provided.
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