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One method for calculating National Income is the output method - Leaving Cert Economics - Question 4 (a) - 2017
Question 4 (a)
One method for calculating National Income is the output method. Outline two other methods used to calculate National Income. Describe the problem of 'double count... show full transcript
Worked Solution & Example Answer:One method for calculating National Income is the output method - Leaving Cert Economics - Question 4 (a) - 2017
Step 1
Outline two other methods used to calculate National Income.
Answer
The two other methods used to calculate National Income are:
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The Income Method: This method involves aggregating all income earned within a country over a specific period. This includes wages, rent, interest, and profits from supplying factors of production. The total income earned is calculated based on data collected by the Revenue Commissioners for tax assessment purposes.
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The Expenditure Method: This approach calculates the total amount of money spent on final goods and services in the country during a year. It sums consumer, firm, and government spending, along with adding the value of exports and subtracting the value of imports to arrive at the national income.
Step 2
Describe the problem of 'double counting' when compiling National Income statistics.
Answer
'Double counting' occurs when the expenditure on intermediate goods is included in the calculation of national output. This problem arises particularly when using the output method to measure economic activity. To avoid double counting, it is essential to distinguish between final and intermediate goods.
When measuring national income, counting the value of both final goods and intermediate goods can lead to inflated figures. Final goods are those that are sold to consumers, while intermediate goods are used in the production of final goods. Distinguishing between these two categories is crucial as it helps to ensure accurate measurement of economic performance.