Can you please explain and identify the strengths and weaknesses of the three approaches of national income?


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There are three key approaches to national income. Here is a quick look at some of their strengths and weaknesses:

Product method

This is basically the "output" approach - and focuses on Gross Domestic Product (GDP). It takes into account the final goods and services that an economy creates collectively.

Although comprehensive in measuring the value of the goods a nation produces, it doesn't take into account intermediary goods and services.

It is a useful method for working out what sector is producing value and preforming well (thus helping forecast employment levels), but the data available is often limited and thus inaccurate in certain sectors.

Income method

Simply put, this method takes into consideration the income that each citizen earns through wages, rent, royalties, etc...

This method could be ineffective in countries where income data is not accurately collected (many countries that have tax evasion issues may fall into this category).

Expenditure method

This method looks at how much money a country spend collectively - thus focusing on PDI and disposable income.

The expenditure method is useful for analysing changes over time and understanding economic conditions.

Where it falls short is an areas where people produce goods or services for themselves, such as making clothing or farming crops for personal consumption.

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