Q. 54.6( 5 Votes )

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.

Answer :

The three identities of calculating the GDP of a country are being discussed below –

v Value Added Method –


Ø It is also called product method. Under this method national income is measured in terms of value addition by each producing enterprise.


Ø GDP at market price = GVA in primary sector at market price + GVA in secondary market at market price + GVA in territory sector at market price


Ø NDP at market price = GDP at market price - depreciation


Ø NDP at factor cost = NDP at market price - net indirect tax


Ø National income = NDP at market price + NFIA


v Income method


Ø Under this method national income is measured in terms of factor payments to the owners of factors of production.


Ø Net domestic income = compensation of employees + operating surplus + mixed income of self employed


Ø National income = Net domestic income + NFIA


v Expenditure method


Ø Under this method national income is measured in terms of expenditure on purchase of final goods and services produced in the economy.


Ø GDP at market price = Private final consumption expenditure + Government final consumption expenditure + Gross domestic fixed capital formation + Change in stock + Net Exports


Ø NDP at market price = GDP at market price - depreciation


Ø NDP at factor cost = NDP at market price - net indirect tax


Ø National income = NDP at factor cost + NFIA


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