APPROACHES TO MEASURING NATIONAL INCOME

The compilation of national income statistics is a very laborious task.  The total wealth of a nation has to be added up and there are millions of nationals.  Moreover, in order to double check and triple check the statistics, the national income statistician has to work out the figures out in three different ways, each way being based on a different aspect.  The three aspects are:

a.          The national output: - The creation of wealth by the nation's industries.  This is valued at factor cost, so it must be the same as b) below.

b.         The national income: - The incomes of all the citizens.

c.          The national expenditure because whatever we receive we spend, or lend to the banks to invest it, so that the addition of all the expenditure should come to the same as the other two figures.

Put in its simplest form we can express this as an identity:

National output Ξ National Income Ξ National Expenditure.