Thursday, February 11, 2010

Product method

Product method
In this method,national income is measured from product side.This method is also called inventory
method and commodity-service method.This method helps to find out the origin of national income
form different sec tore of the economy.Hence,this method is also known as national income by unsocial or sectoral origin.
To measure the national income from this method,the economy is divided into different sector like agriculture,industry,transport,communication,mineral so on.Then,GDP is calculated by adding the money value of final goods and services product in this sectors.The addition of net income from abroad to GDP gives GNP.The net income from abroad is derived by subs tracing from the income received by national in foreign countries as income for services rendered or from capital investment the income received by foreigners as salaries or capital investment in the country concerned.The deduction of depreciation fund or capital consumption allowance gives net income product(NNP).
According to word bank GDP consists of following four elements:
  1. Agriculture :Agriculture includes the value added of the forestry,hunting,fishing including pure agriculture.In developing countries,subsistence agriculture is predominant.Most of the agricultural products are either not exchange the contribution of agriculture to GDP.
  2. Industry :This sector consist of the value added of mineral,manufacturing industry,construction,electricity,water and gas.
  3. Manufacturing :Manufacturing falls within the industry.Since manufacturing is the most dynamic part of the industry sector,it is shown separately.
  4. Service :Value added in all other branches of economic activity including bank service charges,import duties are categorised as service,Here value added is defined as the current cost of(a) materials,fuels,and other supplies consumed; (b) contract and commission work done by other ;(c)repairer and maintenance work done by others;and(d)goods shaped in the same condition as received. There is possibility of double counting while measuring national income by this method.This problem may arise in case of intermediate goods used as row materials.For example,sugarcane,cotton and tobacco of agriculture sector may also be counted as sugar,cloth and cigarettes of industrial product.

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