(a) Describe the output method of measuring the gross domestic product of a country. [6
(a) Describe the output method of measuring the gross domestic product of a country. [6 marks]
(b) How is the net national product at factor cost obtained from gross domestic product? [8 marks]
(c) State two problems associated the output method. [6 marks]
Explanation
(a) The output method of measuring the gross domestic product involves summing up the market values of all output of the economy, sector by sector. Measurement is done using the value added method.
(b) To the gross domestic product, we add the net factor incomes from abroad to obtain gross national product at market prices. From the gross national product at market prices, we deduct depreciation or capital consumption allowance, to obtain net national product at market prices. From the net national product at market prices, we deduct indirect taxes and add subsidies to obtain net national product at factor cost.
(c) The problems associated with output method are:
(i) Double counting.
(ii) Difficulty in measuring subsistence output.
(iii) Difficulty in estimating rental value of owner occupied houses.
(iv) Difficulty in estimating the net income from abroad.
(v) Inaccurate data in measuring the output of the sectors.