The basis of the difference in Income and product method of National Income Accounting is best deciphered by which of the following?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Product method measures the aggregate value of final goods and services produced by all the firms.
The Product Method (also called Output Method) of National Income Accounting calculates national income by adding the market value of all final goods and services produced within a country during a given period.
In contrast, the Income Method adds up all the incomes earned by factors of production (wages, rent, interest, and profit) in the process of producing these goods and services.
Hence, the key distinguishing feature lies in how value is measured:
-
Product Method: Focuses on production/output.
-
Income Method: Focuses on incomes generated from that production.
The given statement about the product method is correct and best captures the distinction.