Measurement of National Income

Lesson

Part 1 — the value-added (product) method and the income method.

In this lesson you will

Explain the three phases at which national income can be measured
Calculate value of output, gross value added and net value added at factor cost, and avoid double counting
Calculate domestic income and national income by the income method

Part 1 at a glance

Concept

One flow, three phases

National income can be measured where it is produced, where it is distributed as factor incomes, and where it is spent.

Three phases, three methods

Concept

Value added is what a producer adds to the inputs it buys.

Table of product-method terms: value of output equals sales plus change in stock; intermediate consumption is inputs used up; gross value added at market price is value of output minus intermediate consumption; net value added at factor cost subtracts depreciation and net indirect taxes
Term	Meaning	Formula
Value of output	Market value of all goods made by a firm in the year	Sales + change in stock
Change in stock	Closing stock − opening stock (can be negative)	Closing − opening
Intermediate consumption	Inputs bought from other producers and used up in the year	Raw materials, power, fuel, services
Gross value added at market price	What the firm adds to its inputs	Value of output − intermediate consumption
Net value added at factor cost	Value added paid out to factors	GVA at market price − depreciation − net indirect taxes