# National product at factor cost is equal to. How do you calculate GDP with the Income Approach? 2019-01-23

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## Relation between National Income at Market Price and at Factor Cost

It is equal to the net value added at market price. The income approach and the closely related output approach sum wages, rents,interest, profits, non income charges, and net foreign factor income earned. Gross Domestic Product at Market Price. The basic formula for domestic output takes all the different areas in which money is spent within the region, and then combines them to find the total output. However the terms are used loosely. Table 1 is constructed on the supposition that the entire economy for purposes of total production consists of three sectors. The higher the per capita income, the higher the economic welfare of the country.

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## ECON 151: Macroeconomics

Gross National Product at Market Price. The data pertaining to income are obtained from different sources, for instance, from income tax department in respect of high income groups and in case of workers from their wage bills. In common parlance, national income means the total value of goods and services produced annually in a country. Methods of Measuring National Income : There are four methods of measuring national income. The difference between basic prices and final prices those used in the expenditure calculation is the total taxes and subsidies that the government has levied or paid on that production. But the problem is of estimating the current depreciated value of, say, a machine, whose expected life is supposed to be thirty years. It excludes depreciation and includes indirect taxes.

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## National Income Concepts

On the other hand, if they are used as intermediate goods, meant for further production, they would not be included in national income. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. Net factor incomes is derived by reducing the factor incomes earned by foreigners from the country, in question from the factor incomes earned by the residents of that country from abroad. I represents an expenditure on investment capital. To run the offices, the governments have also to spend on contingencies which include paper, pen, pencil and various types of stationery, cloth, furniture, cars, etc.

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## How do you calculate GDP with the Income Approach?

It is because we may not get the details of all expenditure correctly. Thus the difference between domestic income f and national income is the net income earned from abroad. Thus depreciation lowers the national income. In any exchange process, the seller or producer receives what the buyer or consumer spends. Government provides a number of services, such as police and military services, administrative and legal services.

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## UPSC IAS Preparation Online

A housewife renders a number of useful services like preparation of meals, serving, tailoring, mending, washing, cleaning, bringing up children, etc. It does not include any transfer payments, such as social security or unemployment benefits. It is only on the basis of these that the government can adopt measures to remove the inequalities in income distribution and to restore regional equilibrium. Similarly, capital losses are not taken into account while estimating national income. It only includes the final goods and services that were produced in that year. In the case where a good is produced and unsold, the standard accounting convention is that the producer has bought the good from themselves. Which method is to be used depends on the availability of data in a country and the purpose in hand.

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## Gross National Product at Factor Cost Homework Help in Macroeconomics

The expenditure on them is regarded as final consumption expenditure because it is not possible to measure their used up value for the subsequent years. Examples include food, rent, jewelry, gasoline, and medical expenses, but not the purchase of new housing. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. Government purchases of finished products of businesses and all direct purchases of resources are called government expenditures G. This finding is called the. Fifth, the payments received under social security, e. Usually this is calculated over a period of one year, but there may be analysis of short and long term trends to be used for economic forecast.

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## Gross domestic product

Second-hand Goods and Assets: Another problem arises with regard to the sale and purchase of second-hand goods and assets. Since what they are paid is just the market value of their product, their total income must be the total value of the product. Net Domestic Product at Market Price. For example, even the richest person in 1900 could not purchase standard products, such as antibiotics and cell phones, that an average consumer can buy today, since such modern conveniences did not exist then. We find that old scooters, cars, houses, machinery, etc. Therefore, in order to obtain disposable income, direct taxes are deducted from personal income. Capital Gains: The problem also arises with regard to capital gains.

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## NNP

Personal income includes the wages, salaries, interest and rent received by the individuals. The whole of the personal income cannot be spent on consumption, because it is the income that accrues before direct taxes have actually been paid. From the data pertaining to wages, rent, interest and profits, we learn of the disparities in the incomes of different sections of the society. Income generated in the relationship between firms and households is taxed and the remaining is either consumed and or saved. Only the services rendered to me during this year by these things are income. Second, income received on account of investment in foreign countries is included in national income. Market goods which are produced are purchased by someone.

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## ECON 151: Macroeconomics

If all such differences are added up for all industries in the economy, we arrive at the gross domestic product. The value of second hand goods is excluded from gross domestic product. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. Main article: Arriving at a figure for the total production of goods and services in a large region like a country entails a large amount of data-collection and calculation. Net National Product at Factor Cost. Research: The national income data are also made use of by the research scholars of economics. The standards are designed to be flexible, to allow for differences in local statistical needs and conditions.

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