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CA Foundation · Business Economics · Determination of National Income

Under the value added method of measuring national income, which of the following is added up across all production units in the economy to arrive at GDP at market prices?

The value added method sums the gross value added of every production unit, computed as value of output minus intermediate consumption. This avoids double counting of intermediate goods, which would occur if gross output of all firms were simply added together.

  1. AValue of final sales plus value of intermediate purchases
  2. BGross value of output of every firm
  3. CGross value added by each production unit (value of output minus intermediate consumption)Correct
  4. DTotal wages paid by every firm

Explanation

The value added method sums the gross value added of all producing units, where gross value added equals value of output minus intermediate consumption. Adding gross output of every firm would double count intermediate goods, which is why that option is wrong.

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