Using The OUTPUT/PRODUCT APPROACH/METHOD in the Measurement of National Income

May 1st, 2009 Comments off
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There are three (3) basic approaches or method in measuring national income namely:-

  1. Income approach
  2. Output/Product approach(below)
  3. Expenditure approach

Below summarizes the OUTPUT/PRODUCT APPOACH/METHOD in computing or measuring national income:

OUTPUT/PRODUCT APPROACH

National product is the total goods and services produced by three economic sectors namely Primary Sector, Secondary Sector and Tertiary Sector

Components using this approach:

TOTAL VALUEOF FINAL GOODS AND SERVICES ROM THE THREE SECTORS OF THE ECONOMY

=

Gross domestic product at market price

Income paid abroad

+

Income received from abroad

=

Gross national product at market price

+

Subsidies

Indirect business taxes or taxes on expenditure

=

Gross national product at factor cost

Depreciation

=

Net national product at factor cost

=

National income

Besides the above of adding up the total value of final goods and services from the three sectors of the economy, national income under the product approach can also be measured by totaling the VALUE ADDED of the goods and services produced by each sector of the economy.

Value added is the extra worth that a business firm adds to intermediate products, measured as the difference between the value of the a firm’s product and the cost of intermediate products bought from outside suppliers

A final good is a product or services purchase by the ultimate user and NOT intended for resale or further processing

An intermediate good is one that is intended for resale or further processing.

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