how is national income calculated by the help of product method
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Product method is also known as output method or value added method. In this method, we calculate the national income in terms of final goods and services produced in an economy during a particular period of time. The final goods are those which are either available to the consumers for consumption or become a part of national wealth in the form of investment.
Definition
Product method is that which estimates the national income by measuring the contribution of final output and services by each producing enterprise in the domestic territory of a country during a given accounting period.
Steps in Product Method
Classification of Productive Enterprises
The first step in this method of measuring national income is the classification of enterprises. All the productive enterprises in the economy are classified into three main categories, viz. (i) Primary Sector, (ii) Secondary Sector and (iii) Tertiary Sector. Let us briefly explain these sectors.
(i) Primary Sector – Primary sector refers to that sector of the economy which exploits natural resources to produce goods. Agriculture and allied activities like mining, quarrying, fishing, forestry etc. are included in this sector.
(ii) Secondary Sector – The manufacturing sector of the economy which transforms one physical good into another is included in the secondary sector.
(iii) Tertiary Sector – Primary sector refers to that sector of the economy is known as the tertiary sector. This includes banking, insurance, education, trade, commerce etc.
Step II.
Classification of Output
National output is classified into the following types:
(i) Consumer Goods – Consumer goods are those goods which help in the further production of consumer gods. These are also called are also called capital goods.
(ii) Producer Goods- Producer gods are those goods which help in the further production of consumer gods. These are also called capital gods.
(iii) Govt. Produced Goods- These include defence, police, education, health care, roads, railways, ports, dams etc.
(iv) Net Exports- Net exports refer to the value of goods and services exported to the rest of the world minus the value of goods & services imported during an accounting year.
Step III.
Measurement of Value of Output
There are two methods of measuring the value of output. They are (i) Final output method, (ii) Value added method. Below we discuss these two approaches of product method of measuring national income.
(i) Final Output Method
In final method, we have to estimate the following element involved to enterprise to production in the domestic territory of the country.
Step Involved in the Method
Step 1. Identification and Classification of Enterprises
The first step involved in this
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Definition
Product method is that which estimates the national income by measuring the contribution of final output and services by each producing enterprise in the domestic territory of a country during a given accounting period.
Steps in Product Method
Classification of Productive Enterprises
The first step in this method of measuring national income is the classification of enterprises. All the productive enterprises in the economy are classified into three main categories, viz. (i) Primary Sector, (ii) Secondary Sector and (iii) Tertiary Sector. Let us briefly explain these sectors.
(i) Primary Sector – Primary sector refers to that sector of the economy which exploits natural resources to produce goods. Agriculture and allied activities like mining, quarrying, fishing, forestry etc. are included in this sector.
(ii) Secondary Sector – The manufacturing sector of the economy which transforms one physical good into another is included in the secondary sector.
(iii) Tertiary Sector – Primary sector refers to that sector of the economy is known as the tertiary sector. This includes banking, insurance, education, trade, commerce etc.
Step II.
Classification of Output
National output is classified into the following types:
(i) Consumer Goods – Consumer goods are those goods which help in the further production of consumer gods. These are also called are also called capital goods.
(ii) Producer Goods- Producer gods are those goods which help in the further production of consumer gods. These are also called capital gods.
(iii) Govt. Produced Goods- These include defence, police, education, health care, roads, railways, ports, dams etc.
(iv) Net Exports- Net exports refer to the value of goods and services exported to the rest of the world minus the value of goods & services imported during an accounting year.
Step III.
Measurement of Value of Output
There are two methods of measuring the value of output. They are (i) Final output method, (ii) Value added method. Below we discuss these two approaches of product method of measuring national income.
(i) Final Output Method
In final method, we have to estimate the following element involved to enterprise to production in the domestic territory of the country.
Step Involved in the Method
Step 1. Identification and Classification of Enterprises
The first step involved in this
Aman8529749297
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