Q1Managerial Economics & Financial Accounting

This is a primary method used to measure National Income. It focuses on the production side of the economy.

Concept: Instead of just adding up the final prices of all goods (which causes the error of double counting, e.g., counting the value of wheat, then flour, then bread), this method measures the Value Added at each distinct stage of production.

Formula: $\text{Value Added}=\text{Value of Output}-\text{Value of Intermediate Consumption (raw materials)}$

Steps: 1. The economy is divided into Primary (agriculture), Secondary (manufacturing), and Tertiary (services) sectors. 2. The Gross Value Added at Market Price ($GV{A}_{MP}$) for all enterprises in all sectors is calculated and summed up. This sum is exactly equal to $GD{P}_{MP}$ (Gross Domestic Product at Market Price). 3. To arrive at National Income ($NN{P}_{FC}$), we apply standard adjustments: $NI=GD{P}_{MP}-\text{Depreciation}+\text{Net Factor Income from Abroad}-\text{Net Indirect Taxes}$.