National Income by Net Output Method

The net output method of calculating national income is also known as the net product method. This method is based on the concept of total output minus intermediate consumption. Hence, the net output method is a method of calculating national income by subtracting the intermediate consumption from the gross output.

Steps Involved in Net Output Method

The following are the steps involved in the calculation of national income by the net output method:

1. Gross Output: Gross output is the total value of goods and services produced during a particular period.

2. Intermediate Consumption: Intermediate consumption is the value of goods and services used up in the production process. It includes the cost of raw materials, semi-finished goods, and services used in the production process.

3. Net Output: Net output is the difference between gross output and intermediate consumption. It is the value added by the production process.

4. Taxes and Subsidies: Taxes and subsidies are added or subtracted from the net output to arrive at the market prices of goods and services.

5. Factor Cost: Finally, the national income is calculated at factor cost by deducting the indirect taxes and adding the subsidies from the market price.

Advantages of Net Output Method

The following are the advantages of calculating national income by the net output method:

1. The net output method provides a clear picture of the value added by the production process.

2. It avoids the problem of double-counting of intermediate goods and services.

3. It is easy to understand and calculate.

4. It is widely used in the calculation of national income.

Conclusion

The net output method is a method of calculating national income by subtracting the intermediate consumption from the gross output. It provides a clear picture of the value added by the production process and is widely used in the calculation of national income.