(PRODUCT METHOD)
METHODS OF CALCULATING NATIONAL INCOME 1
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INTRODUCTORY MACRO ECONOMICS
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SHASHI AGGARWAL ECONOMICS AND LAW CLASSES
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METHODS
1. VALUE ADDED
METHOD ( OR PRODUCT METHOD)
2. INCOME METHOD
3. EXPENDITURE
METHOD
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PRODUCT
METHOD/VALUE ADDED METHOD
1. ALSO KNOWN AS
INDUSTRY ORIGIN METHOD OR NET OUTPUT METHOD
2. VALUE METHOD
MEASURES NATIONAL INCOME IN TERMS OF VALUE ADDITION BY EACH PRODUCING
ENTERPRISE IN THE ECONOMY DURING AN ACCOUNTING YEAR
3. ESTIMATION OF
THE CONTRIBUTION OF ALL PRODUCING ENTERPRISES TO PRODUCTION IN THE DOMESTIC
TERRITORY OF THE COUNTRY DURING THE YEAR IS EQUAL TO MARKET VALUE OF THE GDP
4.
CALLED GDPMP
5.
ADJUSTED TO FIND OUT THE NNPFC
OR NATIONAL INCOME
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VALUE
ADDED
1. EXCESS OF
VALUE OF OUTPUT OVER AND ABOVE THE VALUE OF INTERMEDIATE GOODS AND SERVICES
USED IN THE PROCESS OF PRODUCTION.
2. VALUE ADDED=
VALUE OF OUTPUT—COST OF INTERMEDIATE GOODS
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VALUE OF OUTPUT
1. REFERS TO THE
MARKET VALUE OF THE GOODS AND SERVICES PRODUCED BY A FIRM DURING AN ACCOUNTING
YEAR
2. IF THE ENTIRE
OUTPUT OF THE YEAR IS SOLD DURING THE YEAR
3. VALUE OF
OUTPUT=SALE
4. IF SOME
OUTPUT REMAINS UNSOLD AND IT IS ADDED TO THE FIRM’S INVENTORY STOCK
5. EXPRESSED AS
A CHANGE IN STOCK DURING THE YEAR
6. VALUE OF
OUTPUT= SALES +∆STOCK ( IF SOME OUTPUT REMAINS UNSOLD)
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VALUE OF OUTPUT /VALUE ADDED
1. VALUE OF
OUTPUT : REFERS TO THE MARKET VALUE OF THE GOODS PRODUCED
2. VALUE ADDED
:-MARKET VALUE OF THE GOODS PRODUCED MINUS MARKET VALUE OF THE GOODS USED AS
INPUTS/RAW MATERIAL IN THE PROCESS OF PRODUCTION
3. GOODS USED AS
INPUTS RAW MATERIAL ARE CALLED INTERMEDIATE GOODS
4. VALUE ADDED
=VALUE OF OUTPUT-VALUE OF INTERMEDIATE GOODS USED IN THE PROCESS OF PRODUCTION
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CHANGE IN STOCK
1. MEASURED AS
THE DIFFERENCE BETWEEN CLOSING STOCK OF ACCOUNTING YEAR AND OPENING STOCK OF
THE ACCOUNTING YEAR
2. ∆ STOCK =
CLOSING STOCK- OPENING STOCK
3. 20,000 IS THE
OPENING STOCK
4. 30,000 IS THE
CLOSING STOCK
5. CHANGE IN STOCK=
30,000-20,000=10,000
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INTERMEDIATE GOODS
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INTERMEDIATE GOODS ARE THOSE WHICH ARE USED AS
RAW MATERIAL OR USED FOR FURTHER RESALE.
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REFERS TO VALUE OF NON FACTOR INPUTS ( ALL
INPUTS OTHER THAN FACTOR INPUTS OF LAND,LABOUR ,CAPITAL AND ENTREPRENEURSHIP)
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INCLUDES THE VALUE OF RAW MATERIAL USED IN THE
PROCESS OF PRODUCTION
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PROBLEM
1. THE FARMERS
SELLS WHEAT TO FLOUR MILL FOR 600
2. THE FLOUR
MILL BUY WHEAT FOR RS 600 AND SELLS FLOUR FOR 800
3. BAKER
PURCHASE THE FLOOR FOR 800 AND SELLS THE BREAD FOR 1000
4. THE
SHOPKEEPER BUYS THE BREAD FOR RS 1000 AND SELLS FOR RS 1100
• VALUE ADDITION
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GDPMP
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GROSS VALUE ADDED BY ALL THE PRODUCING
ENTERPRISES WITH IN THE DOMESTIC TERRITORY OF A COUNTRY DURING AN ACCOUNTING
YEAR IS CALLED GROSS DOMESTIC PRODUCT AT MARKET PRICE
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GROSS DOMESTIC PRODUCT AT MARKET PRICE
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GDPMP =MARKET VALUE OF FINAL GOODS
AND SERVICES PRODUCED IN THE ECONOMY DURING THE PERIOD OF ONE YEAR
• NDPFC
(NET DOMESTIC PRODUCT AT FACTOR COST)
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GDPMP -DEPRECIATION
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=NDPMP
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NDPMP –NET INDIRECT TAXES=NDPFC
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NDPFC +NET FACTOR INCOME FROM
ABROAD=NNPFC
• •
STEPS
1. IDENTIFICATION
OF CLASSIFICATION OF PRODUCTIVE ENTERPRISE
2. ESTIMATION OF
NATIONAL INCOME:-
1. VALUE OF
OUTPUT
2. VALUE OF
INTERMEDIATE GOODS
3. CONSUMPTION
OF FIXED CAPITAL
4. NET INDIRECT
TAXES
5. NET FACTOR EARNED FROM ABROAD
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NATIONAL INCOME
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NATIONAL INCOME = VALUE OF OUTPUT-VALUE OF
INTERMEDIATE CONSUMPTION-DEPRECIATION-NET INDIRECT TAXES+NET FACTOR INCOME
EARNED FROM ABROAD
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NATIONAL INCOME = NET VALUE ADDED AT FACTOR
COST IN PRIMARY SECTOR+NET VALUE ADDED IN TERTIARY SECTOR+NET VALUE ADDED AT
FACTOR COST IN SECONDARY SECTOR+ NET FACTOR INCOME FROM ABROAD
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PRECAUTIONS REGARDING VALUE ADDED METHOD
1. VALUE OF THE
SALE AND PURCHASE OF SECOND HAND GOODS IS NOT INCLUDED IN THE ESTIMATION OF
VALUE ADDED BECAUSE THE VALUE OF SECOND HAND GOODS IS ALREADY ACCOUNTED FOR
DURING THE YEAR IT WAS PRODUCED
2. COMMISSION EARNED
ON ACCOUNT OF THE SALE AND PURCHASE ON THE SECOND HAND GOODS IS INCLUDED.
COMMISSION IS THE REWARD FOR RENDERING THE SERVICES.
3. OWN ACCOUNT
OF PRODUCTION IS ALSO TAKEN INTO ACCOUNT
4. IMPUTED VALUE
OF PRODUCTION FOR SELF CONSUMPTION IS ALSO TAKEN INTO ACCOUNT
5.
PRECAUTIONS REGARDING VALUE ADDED METHOD
6. VALUE OF
INTERMEDIATE GOODS IS NOT INCLUDED IN THE ESTIMATION OF THE VALUE ADDED. VALUE
OF INTERMEDIATE GOODS IS REFLECTED IN THE VALUE OF THE FINAL GOODS
7. IMPUTED RENT
ON OWNER OCCUPIED IS TO BE TAKEN INTO ACCOUNT
8. SERVICES FOR
SELF CONSUMPTION ARE NOT CONSIDERED WHILE ESTIMATING VALUE ADDED
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