Question

1. Explain product method of estimating national income. What are the
problems associated with this method? How can you resolve these
problems?

Answer 1

Answer:

Now, there are several methods of calculating national income. The three most common methods are the value-added method, the income method, and the expenditure method. The value-added method focuses on the value added to a product at each stage of its production.

Answer 2

In product system, national income is measured by calculating the monetary value of all the final goods and services produced in an economy during one year.

• A major issue faced in the product method of determining the national income is double counting.
• To avoid double counting,  the method of value-adding can be used where instead of the entire value of a commodity the value-added value is measured at each point of output, and are summed up to achieve GDP.
• Many a times, firms add the value of intermediate goods. the firms should take care and should not include intermediate goods such as raw materials, or the semi finished goods