National Income Determination by the Output Method

National Income Determination by the Output Method

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Using this method, the national income of a country can be determined by adding the outputs of all the businesses in the economy to arrive at the total output of the nation. Output method and value added method are other names for the product method. The final goods and services produced in an economy over a specific time period are used in this method to determine the National Income. The final goods are those that either become part of the national wealth through investment or are available to consumers for consumption. The Product Method estimates a nation's national income by measuring the final output and services produced by each producing enterprise in the country's domestic territory over a specific accounting period.

Classification of Productive Businesses - The classification of businesses is the first step in this method of measuring national income. The following categories encompass all economically productive businesses:

i. Primary Sector - The term "primary sector" refers to the part of the economy that uses natural resources to make products. Mining, quarrying, fishing, forestry, and other related activities include agriculture. are a part of this Sector.

ii. Secondary Sector - The economy's manufacturing sector, which converts one physical good into another, falls under this category.

iii. Tertiary Sector - The tertiary sector of the economy, more commonly referred to as the service sector, is comprised of the provision of services rather than final goods.

Classification of Output is carried out within:

1. Goods for Consumers: Goods for Consumers are those that contribute to the expansion of consumer god production. Capital goods are also used to describe these.

2. Producer Goods: Products that aid in the subsequent production of consumer goods are considered producer goods. Capital goods are another name for these.

3. Govt. Produced Goods: These include things like roads, railways, ports, dams, the police, education, and health care.

4. Net Exports: In accounting, net exports are calculated by subtracting the value of goods and services imported from the value of goods and services exported to the rest of the world.

Measurement of the Output's Value

The Final Output Method - In order to determine the correct value of the Output, we must estimate the following components in the final method.

(a) Output value - Here output implies last merchandise as well as Transitional products. By dividing the Market Price by the quantity of Output produced by each producing unit, an estimate of their value can be made. The change in stock and the value of sales are equal to this.

(b) Worth of Intermediate Consumption -The labor and products involved by the organizations as sources of info are called intermediate consumption. We must multiply the Intermediate goods by the prices paid by the Enterprises to purchase them in order to determine the value of Intermediate Consumption.

c) Consumption of Fixed Capital - Consumption of Fixed Capital is characterized by depreciation. Capital assets lose value as a result of machine wear and tear during product production. We must subtract the value of the capital asset at the end of the accounting period from the value of the asset at the beginning of the accounting period in order to calculate this loss of value.

The final output method subtracts the value of intermediate goods from the output value. The Market Price is multiplied by the quantity produced by each producing business. Output's value is provided to us by this. To determine the Output's value, we subtract the value of Intermediate Consumption from this. When we add the market value of final output in the primary, secondary, and tertiary sectors, we get gross domestic product at market price.

The Value of final output = Value of output + Value of intermediate goods

By subtracting depreciation from GDP at Market Price, we can calculate net domestic product at Market Price. GDP at Market Price is equal to the market value of the primary sector's final output plus the market value of the tertiary sector's final output. At the point when we add net component Pay from abroad, we get GNP and NNP at Market Cost.