Theory question 112
National Income(a) Describe the output method of measuring the gross domestic product of a country.
(b) How is the net national product at factor cost obtained from gross domestic product?
(c) State two problems associated with the output method.
Show the model answer
(a) The output (product) method adds up the money value of all final goods and services produced by all sectors (agriculture, mining, manufacturing, services) in the country in a year; to avoid double counting, only final goods or value added at each stage are counted.
(b) GDP at market prices + net factor income from abroad = GNP at market prices; − depreciation = NNP at market prices; − indirect taxes + subsidies = NNP at factor cost (national income).
(c) Any two: double counting; difficulty of valuing subsistence output not sold; inadequate and unreliable data; difficulty in deciding which goods are final; changes in prices; illiteracy of producers who keep no records.
Show the adjustments step by step from GDP to NNP at factor cost.