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Chapter 4 Part 1

National income (NNPFC) is the net money value of all final goods and services produced by a country's residents in a year. The value added method measures national income by calculating the value added to raw materials by firms, which is determined by the value of output minus intermediate consumption. Key precautions include excluding intermediate goods and second-hand sales, while including self-consumed goods and changes in stock.

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23 views2 pages

Chapter 4 Part 1

National income (NNPFC) is the net money value of all final goods and services produced by a country's residents in a year. The value added method measures national income by calculating the value added to raw materials by firms, which is determined by the value of output minus intermediate consumption. Key precautions include excluding intermediate goods and second-hand sales, while including self-consumed goods and changes in stock.

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prabhatchauhan671
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TAGORE PUBLIC SCHOOL, NARAINA VIHAR

CLASS – XII
SUBJECT – ECONOMICS

CHAPTER FOUR – MEASUREMENT OF NATIONAL INCOME (Value Added Method)

National Income(NNPFC)
National income refers to net money value of all final goods and services produced by the normal
residents of the country during a period of one year.

Methods to the measurement of National Income:


➔ Value added method
➔ Income method
➔ Expenditure method

Value Added Method:(product method, inventory method)


Value added method refers to the addition of value to the raw material by a firm.

Value added = Value of output - Intermediate consumption (GDPMP)

Value of output = Sales + Change in stock + Production for self consumption


● Sales = Quantity x Price
● Change in stock = closing stock - opening stock

Firm can sell their product inside and abroad and if the value of sales are given then exports are
already included and if domestic sales are given then exports should be included separately.

Intermediate consumption
Refers to the consumption which are meant for resale or for further production during the same
year. Raw materials (can be purchased from domestc or from abroad). If the value of intermediate
consumption is given then Improts are already included, if it is specified as domestic purchase then
imports should be included separately.

It can also calculated by

GVAMP of primary sector + GVAMP of Secondary sector + GVAMP of tertiary sector = GDPMP
NNPFC = GDPMP – Depreciation -NIT + NFIA

Precautions of Value Added Method


1. Intermediate Goods are not to be included in the national income.
2. Sale and Purchase of second- hand goods is not included.
3. Production of Services for Self- consumption are not included.
4. Production of Goods for self- consumption will be included.
5. Imputed value of owner- occupied houses should be included.
6. Change in the stock of Goods (inventory) will be included.

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