Measurement of NYMeasurement of NY
Prof. Prabha Panth,
19 Jul 2013 2
There are three methods to measure
1) Output or Product Method,
2) Income Method,
3) Expenditure Method
In theory they should all give the
same result, because Total
expenditure = total income = value
of total output.
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1. The Product Method:1. The Product Method:
NY is the aggregate money value of the
net yearly flow of final goods and services
in the economy.
This method gives GDP at market prices.
In this method, the value of only final
goods and services of one year is taken.
All intermediate goods and services are
Using Value Added method, double
counting can be avoided.
19 Jul 2013 4
Wheat 10 a KG
Flour 12 a KG
Item Rs. Value
Wheat 10 a KG
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Capital gains have to be excluded.
Depreciation has to be excluded.
Many goods and services are not
marketed, but self consumed.
Self occupied houses,
Does not include incomes earned from
Subsidies should be added and indirect
taxes deducted to get NY.
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2. The Income Method:2. The Income Method:
NY is the sum of all incomes in an
NY = Wages and salaries + Corporate
profits + Rent + Interest
But does not include:
Incomes of Indians living abroad,
This method gives NY at factor cost, after
adjusting for above.
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3. Expenditure Method:3. Expenditure Method:
GDP = sum of all expenditures of the four
HH expenditure + Firms’ expenditure +
Gov expenditure + (Exports – Imports) =
GDP at market prices.
But following adjustments to be made:
Include value of unsold goods (added to
Second hand sales to be excluded.
Depreciation to be deducted.
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Actually all three methods are used:
For services – Income method is used.
For Government – expenditure method.
For Firms’ and Foreign sector – product
Necessary to have proper statistics
Proper accounting procedures.