Product Method
In this method, national income is measured as an aggregated flow of goods and services in the
economy from the different sectors: agriculture, industry and services. Economists calculate
money value of all final goods and services produced in the economy during a specified period.
Final goods refer to only those goods which are consumed by economy participants and not the
ones used in further production processes (intermediate goods).
Product method deals with the economy sector-wise. The total output in the economy is
computed as the sum of the outputs of various sectors.
Income Method
In this method, national income is measured as the aggregate income of individuals in the
economy. Robert Kiyosaki, an author and businessman, divides the whole working population in
the world in four broad categories – Employees (labour and other employees), Professionals,
Entrepreneurs and Investors. Employees earn wages and salaries, Professionals earn their
income based on their services, Entrepreneurs earn profits (including undistributed corporate
profits) and Investors earn return on their capital and rent on their land. Sum of all these
incomes for a specified period is called National Income for the economy.
Expenditure Method
As all the goods and services produced in an economy are bought (consumed) by someone,
National Income may also be calculated from the consumption end. Expenditure method
attempts to undertake the same philosophy while computing the National Income. Consumers
in an economy are broadly divided into three categories – individuals, corporates and
government.
Further, as an economy would also have exports (people of foreign countries spending on
goods and services produced by an economy) and imports (people of an economy spending on
goods and services produced by other economies), necessary adjustments are made for the
same by the economist while arriving at the National Income through this method. The
aggregate demand for goods and services is computed as the sum of private consumption,
government spending, gross capital formation and net exports.
In practice, all three counting methods produce similar results with minor differences for
several reasons including errors in the statistics.
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