Testbook Logo
ExamsSuperCoachingLive ClassesFREETest SeriesPrevious Year PapersSkill AcademyPassPass ProPass Elite Rank PredictorIAS PreparationPracticeGK & Current AffairsDoubtsBlog
Pass Pro Max logo

FREE

Download the Testbook App,

For FREE 7 days of
Pass Pro Max!

Exams
Tests
SuperSuper
SuperPass
logo

The Product or Value Added Method for National Income Calculation

The Product or Value Added Method is a fundamental approach used in calculating Gross Domestic Product (GDP), a key indicator of a nation's economic performance. This method provides a systematic framework for measuring the total economic output of a country over a specific period, typically a year or a quarter. At its core, the Product or Value Added Method focuses on assessing the value added at each stage of production within an economy. It tracks the increase in value that occurs as goods and services progress through the various stages of production.

The product or value added method is a vital topic for commerce-related exams such as the UGC-NET Commerce Examination.

In this article, the readers will be able to know about the product or value added method in detail, along with the other related topics.

The Product or Value Added Method for National Income Calculation

Among the three popular methods of determining national income, the Value Added Method holds a notable extent. This method, also known as the Product Method or Output Method, is primarily used to calculate national income by considering the value added to a product at every stage of its production. The other two ways are the Expenditure Method and the Income Method.

The Value Added Method needs to compute the net value added at factor cost (NVAfc). This is achieved by deducting net indirect taxes from the gross value. This method ranks the economy into various industry sectors such as agriculture, transportation, fishing, communication, etc.

As the name suggests, this method focuses on the net value addition by every part applied in the production process. Therefore, certain parts need to be banned or subtracted from the output of the enterprise. These include:

  • Consumption of raw materials
  • Capital consumption
  • Net Indirect Taxes

the product or value added method

Fig: The product or value added method

Promo Banner

UGC NET/SET Course Online by SuperTeachers: Complete Study Material, Live Classes & More

Get UGC NET/SET - Till Dec'2025 Exam SuperCoaching @ just

259998749
🪙 Your Total Savings ₹17250

Want to know more about this Super Coaching?

People also like

CUET PG

CUET PG

20999(68% OFF)

6749 (Valid Till June 2025 Exam)

Nirnay IAS 2026 - Lakshya Batch - 3 (Hinglish)

Nirnay IAS 2026 - Lakshya Batch - 3 (Hinglish)

110000(34% OFF)

73333 (Valid for 24 Months)

UGC NET/SET & Assistant Professor/Lectureship (Combo)

UGC NET/SET & Assistant Professor/Lectureship (Combo)

43999(71% OFF)

12832 (Valid for 6 Months)

Working of The Product or Value Added Method 

Here's how the Product or Value Added Method works:

  • Intermediate Goods and Services: The method starts by considering the value added at each stage of production. Value added is the difference between the value of goods or services produced and the cost of intermediate goods and services used in the production process.
  • Avoiding Double Counting: It's important to avoid double-counting when calculating GDP. This means that only the value added at each stage of production is counted, not the total value of the goods or services produced.
  • Summation: The value added by each firm at every stage of production is summed to get the total value added within the economy.
  • Final Goods and Services: Finally, the value added from the production of final goods and services is totaled to arrive at the GDP figure.

How to Calculate National Income Using the Product or Value Added Method

The calculation has been stated below.

  • Step 1: Identifying and Classifying Production Units

Begin by placing all domestic production units and ordering them into the primary, secondary, and tertiary sectors.

  • Step 2: Estimating the Gross Value Added of Each Sector

The Gross Value Added (GVA) is figured as the difference between the Value of output and Intermediate consumption.

  • Step 3: Estimating GDP

Add up the GVA of all three sectors (primary, secondary, and tertiary) to obtain the Gross Domestic Product (GDP) of the economy.

  • Step 4: Determining National Income

To derive the national income (NNPfc) from the GDP at market prices (GDPmp), follow these steps:

– Add the Net Factor Income from Abroad (NFIA),

– Subtract Depreciation, and

– Deduct Net Indirect Taxes

Here's the formula:

NNP FC = GDP MP – Depreciation + Net factor income from abroad – Indirect taxes + subsidies

Conclusion

The product or value-added method is a valuable tool that allows economists, policymakers, and analysts to dissect an economy's production process and assess the value added at each stage. It provides insights into the contribution of various sectors and industries, shedding light on their stature in economic growth and stability. This method helps specify areas for investment, job creation, and economic diversification, finally guiding policy decisions and fostering sustainable economic development.

The product or value added method is a vital topic as per several competitive exams. It would help if you learned other similar topics with the Testbook App.

Major Takeaways for UGC NET Aspirants

  • The Product or Value Added Method is a fundamental approach used in calculating Gross Domestic Product (GDP), a key indicator of a nation's economic performance. 

  • How to Calculate National Income Using the Product or Value Added Method

    • Step 1: Identifying and Classifying Production Units

    • Step 2: Estimating the Gross Value Added of Each Sector

    • Step 3: Estimating GDP

    • Step 4: Determining National Income

The Product or Value Added Method FAQs

Report An Error

Open this in:

Testbook LogoTestbook App
ChromeChrome
Hot Links: online teen patti lotus teen patti teen patti bliss teen patti stars