Production gives rise to income, income gives rise to demand for goods and services, and demand in turn gives rises to expenditure. Again, expenditure leads to further production. The circular flow of production, income and expenditure represents three related phases, namely, production, distribution and disposition. Thus, national income can be approached in three ways β as a flow of goods and services, as a flow of incomes or as a flow of expenditure on goods and services. To measure it at the phase of production, we find out the sum of net values added by all the producing enterprises of the country. To measure it at the phase of income distributed, we find out the total income generated in the production of goods and services. To measure it at the phase of disposition, we have to know the sum of expenditures of the three spending units in the economy, namely, government, consumer households and producing enterprises. Corresponding to the three phases, we have three methods of measuring national income.
- Income method
- Value added method/ Product method
- Expenditure method