MEASUREMENT OF NY BY VALUE ADDED METHOD

MEASUREMENT OF NY BY VALUE ADDED METHOD.

 

PRESENTED BY: -

                                               RAMESH KUMAR,

                                                     PGT (ECONOMICS)

                                                 K V FARIDKOT CANTT.

'MEASUREMENT OF N Y BY VALUE ADDED METHOD 
                                                                     

•      METHODS OF MEASURING NATIONAL INCOME: -

There are three methods of measuring NY:-

•      1. Value Added method or Product method.

•      2. Income method.

•      3. Expenditure method.

•      OBJECTIVES:-

•      1. To know about the National income measurement.

 2. To understand the various components of NY of Value added methods.

•      3. To develop the skill to calculate the National Income by Value Added method.

•      INTRODUCTION

* Value Added is the addition to the Value of intermediate  goods during the different stages of the production process. Product and  Value Added method is that method which measured the National Income by estimation the contribution of each enterprise to production in the domestic territory of the country in an accounting year.

•      DIVISION OF THE ECONOMY.

•      To understand the Calculation of NY, Economy is divided into three sectors.

•      1. Primary Sector: -  .It consists of Agriculture and Allied activities ( Like.. Animal husbandry, Mining, fisheries, quarrying, forestry   etc.)

•      2. Secondary Sector : - It is also called manufacturing sector, produces goods only)

•      3. Tertiary Sector : -  It is service sector, which provide services to the economy, like- Banking, hotels, teaching, transportation, travelling by different modes etc.)

•      HOW TO CALCULATE N Y VALUE ADDED METHOD: -

Estimation of Value added: - To find Net Value added at factor cost. The Value of Output is to be calculated. It is the market Value of all the final good and services produced by all the enterprises in the economy in an accounting year. 

•      STEPS  INVOLED IN VALUE ADDED METHOD: - Three steps are involved -

1. Identification and classification of producing enterprises ,

2. Estimation of net value added ,

3. Estimation of Net National product at factor cost.

1. Identification and classification of producing enterprises :-

There are three sectors in the economy: -

1. Primary Sector    2. Secondary sector   3. Tertiary Sector

1. Primary Sector :- Primary Sectors produces goods. This sector includes Agriculture sector and allied activities ( like- animal husbandry, mining, fishery, quarrying and forestry etc.) Primary Sector exploiting  all these natural resources and produces goods.

  2. Secondary sector : -This sector converted raw materials into final goods with the help of factor of production and raw materials, This sector is also called industrial or manufacturing sector.

3. Tertiary Sector: - This sector provided services to Primary and Secondary sector, like transportation, banking, insurance and communication etc.

2. Estimation of net value added: - The value of output is calculating by adding up all the final goods and services produced by three producing sectors. This is calculate at the domestic level.

Value of output includes -

1.Factor cost- Rent , interest, profit and Compensation of employee and mixed income.

2. Add value of raw material, value of depreciation  and value of net indirect taxes ( IT - Subsidy)

CALCULATION OF GROSS VALUE ADDED:-

  Value of output - Value of intermediates consumption.

From GVA at MP deduct depreciation and NIT , that will be equal to

=  Net Value added at FC ( Domestic product at FC)

Calculation of Net National product at FC or NNP at FC)

NNP at FC = Net Domestic Product at FC + NFIA , NNP at FC is equal to National income.

PRECAUSTIONS : -

While calculated N Y by Value Added Method ,The following items should be included: --

1. Imputed Rent of owner occupied houses.

2. Imputed Value of own account production of Goods and services produced for self consumption.

3. Value of own account of production of fixed assets by enterprises, government and household.

4. Only Value added and not Value of output is added in the calculation.

While calculated N Y by Value Added Method ,The following items should not be included: --1. Sale and purchase of second hand goods should not includes.

2. Sale of share and bound of by companies should not includes.

3. Services for self consumption should not included.

4. Income from illegal activities.                                                                 

HOME WORK: -

1. Explain the different steps taken in calculation of National Income by Value added method.

2. What precaution should be taken in calculation by Value added method? Explain

3. Numerical question.........................................................................................................................................

                                                                                Thank you all.