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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.
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
From the following data, calculate Personal Income and Personal Disposable Income.
Rs (crore) | |
(a) Net Domestic Product at factor cost | 8,000 |
(b) Net Factor Income from abroad | 200 |
(c) Undisbursed Profit | 1,000 |
(d) Corporate Tax | 500 |
(e) Interest Received by Households | 1,500 |
(f) Interest Paid by Households | 1,200 |
(g) Transfer Income | 300 |
(h) Personal Tax | 500 |