Which of the following statements about the product method of calculating national income are true?
(A) The product method is also called the value added method.
(B) Value added is a flow variable.
(C) Production of the firm = value added + intermediate goods used by the firm.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (C)
All three statements are true.
(A) The product method is also called the value added method. — Correct. The book names it the product or value added method.
(B) Value added is a flow variable. — Correct. Value added is produced over a period, so it is a flow.
(C) Production of the firm = value added + intermediate goods used by the firm. — Correct. Value added = production − intermediate goods, so production = value added + intermediate goods.
NCERT (2026-27): “2.2.1 The Product or Value Added Method … The term that is used to denote the net contribution made by a firm is called its value added. We have seen that the raw materials that a firm buys from another firm which are completely used up in the process of production are called ‘intermediate goods’. Therefore the value added of a firm is, value of production of the firm – value of intermediate goods used by the firm. The value added of a firm is distributed among its four factors of production, namely, labour, capital, entrepreneurship and land. Therefore wages, interest, profits and rents paid out by the firm must add up to the value added of the firm. Value added is a flow variable.” |