RAS question
Which method of calculating national income starts from the output of each sector?
Correct answer: (B) Product/Output Method.
The product or output method calculates national income by starting from the value of goods and services produced by firms and then using value added to avoid double counting.
Explanation
The product or output method is the national-income method that begins with production. NCERT describes it as measuring the aggregate value of final goods and services produced by all firms. The key step is value added: a firm's contribution is not its gross output alone, because some inputs may already have been produced by another firm. To avoid counting the same intermediate good twice, the method subtracts intermediate goods from the value of output and sums gross value added across firms. That is why it is also called the value-added method. In sector terms, this logic starts from output in primary, secondary and tertiary activities, then aggregates only their net contribution to national income.
Why the other options are wrong
- (A) The expenditure method starts from final spending on goods and services, not from the output produced by each sector.
- (C) The income method starts from factor payments such as wages and profits, so it measures incomes generated by production rather than sectoral output itself.
- (D) Savings method is not one of the standard national-income calculation methods listed for this framework.
Concept
This tests National Income Accounting, especially the distinction between product, income and expenditure approaches. It recurs in RAS because GDP and GVA questions often turn on whether a measure is being approached through production, factor incomes or final expenditure.