Write down the three identities of calculating the GDP of a country by the three methods. Also briefly explain why each of these should give us the same value of GDP.
Write down the three identities of calculating the GDP of a country by the three methods. Also briefly explain why each of these should give us the same value of GDP.
Three identities of calculating GDP are as follows:
I. Product Method or Value Added Method: It is that method which measures national income in terms of value added by each producing enterprise in the economy. It is calculated as
Gross Value Added in the primary sector at Market Price + Gross Value Added in the secondary sector at Market Price + Gross Value Added in the Tertiary Sector at Market Price = GDPMP
GDPMP - Depreciation = Net Domestic Product at Market Price
NDPMP - Net Indirect Tax = Net Domestic Product at Factor Cost
NDPFC + NFIA = National Income
ll. Income Method: Under this method, national income is measured in terms of factors payments to the owners of factors of production. It is calculated as
Compensation of Employees + Operating Surplus + Mixed Income of the self-employed = Net Domestic Income
Net Domestic Income + NFIA = National Income
III. Expenditure Method: Under this method, national income is measured in terms of expenditure on the purchase of final goods and services produced in the economy. It is calculated as.
Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Fixed Capital Formation + Change in Stock + Net Exports = GDPMP
GDPMP - Depreciation = Net Domestic ProductMP
NDPMP - Net Indirect Tax = NDPFC
NDPFC + NFIA = National Income
Three identities of calculating GDP are as follows:
I. Product Method or Value Added Method: It is that method which measures national income in terms of value added by each producing enterprise in the economy. It is calculated as
Gross Value Added in the primary sector at Market Price + Gross Value Added in the secondary sector at Market Price + Gross Value Added in the Tertiary Sector at Market Price = GDPMP
GDPMP - Depreciation = Net Domestic Product at Market Price
NDPMP - Net Indirect Tax = Net Domestic Product at Factor Cost
NDPFC + NFIA = National Income
ll. Income Method: Under this method, national income is measured in terms of factors payments to the owners of factors of production. It is calculated as
Compensation of Employees + Operating Surplus + Mixed Income of the self-employed = Net Domestic Income
Net Domestic Income + NFIA = National Income
III. Expenditure Method: Under this method, national income is measured in terms of expenditure on the purchase of final goods and services produced in the economy. It is calculated as.
Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Fixed Capital Formation + Change in Stock + Net Exports = GDPMP
GDPMP - Depreciation = Net Domestic ProductMP
NDPMP - Net Indirect Tax = NDPFC
NDPFC + NFIA = National Income
