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Question
Answer in detail:
Explain the Output method of measuring National income.
Solution
Output Method: This method measures the national income either, by taking the market value of final goods and services produced in an economy during an accounting year, or by estimating the contribution made by each of the producing units in the economy to the total production within the domestic territory during an accounting year. There are two methods of measuring national income by the output method.
i. The final goods method: This method measures the national income by taking the market value of final goods and services produced in an economy during an accounting year.
ii. The value added method: The value added method measures the national income by estimating the contribution made by each of the producing units in the economy to the total production within the domestic territory during an accounting year.
This can be understood by the following example:
| Production stages | Value of input | Value of output | Value added |
| Milk(farmer) | 0 | 400 | 400 |
| Cheese(dairy) | 400 | 800 | 400 |
| Sweets(shopkeeper) | 800 | 1200 | 400 |
| Total value | 1200 | 2400 | 1200 |
Here, we have assumed that there is only one final product (sweets) and there are three stages of production i.e. there is milk, cheese and sweets. Also, it is assumed that milk is the only input in the production of cheese and cheese is the only input in the production of sweets.
As the final value of sweets produced is Rs 1200, national Income is Rs 1200.The value added at every stage can also be summed up to get national income. Value added (value of output- value of input) by the farmer is Rs 400 (400 − 0). Value added by the dairy is Rs 400 (800−400). Value added by the shopkeeper is Rs 400(1200−800). Sum of all the values added also gives Rs 1200(400+400+400).
Thus, national income as per the above example is Rs 1200.
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PASSAGE
Corona has slowed down the economy Lockdown imposed to contain the spread of Corona virus had resulted in closure of manufacturing and business activities. During this financial year, the economy is expected to move towards a contractionary phase rather than expansionary phase. This has been stated in the budget. This is the first paperless budget in the history of India. At the same time, it is the third post-independence budget to be presented at a time when the economy is shrinking. The budget shows a fiscal deficit of more than 5%.
The Union Finance Minister has presented a budget that seeks to accelerate the economy by balancing the impact of Corona on the economy on one hand and growing expectations of all sectors on the other. A significant increase in the allocation for Healthcare by 137% is a feature of this budget. In this budget, the expected revenue for the year 212-2022 is Rs. 34,35, 000crore and the expected expenditure is Rs. 35,83, 000 crore.
Attempts have been made to boost infrastructure, education, agricultural production, employment generation and industry, but the Income tax status quo has remained the same. The budget provides Rs.16.5 lakh crore for agricultural credit, Rs. 223,000 crore for health facilities, Rs. 3 lakh crore for Power Distribution Scheme, Rs. 15,700 crore for Small and Medium Enterprises and Rs. 20,000 crore for Government Bank Capital.
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