Three identities of calculating GDP are as follows:
(i) Product method or value added method It is that method which measures National Income in terms of value addition by each producing enterprise in the economy.
It is calculated as:
Gross Value Added in the Primary Sector at Market Price + Gross Value Added in the Secondary Sector at Market Price + Gross Value Added in the Tertiary Sector at Market Price = $GD{{P}{MP}}$.
$GD{{P}{MP}}$ - Depreciation = Net Domestic Product at
Market Price ($ND{{P}{MP}}$)
$ND{{P}{MP}}$ - Net Indirect Tax = Net Domestic Product
at Factor Cost ($ND{{P}{FC}}$)
$ND{{P}{FC}}$ + NFIA = National Income
(ii) Income method Under this method, National Income is measured in terms of factor payments to the owners of factors of production.
It is calculated as:
Compensation of Employees + Operating Surplus + Mixed Income of the Self-employed = Net Domestic Income at Factor Cost Net Domestic Income at Factor Cost + NFIA = National Income
(iii) Expenditure method Under this method, National Income is measured in terms of expenditure on the purchase of final goods and services produced in the economy.
It is calculated as:
Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Fixed Capital Formation + Change in Stock + Net Exports = $GD{{P}{MP}}$
$GD{{P}{MF}}$ - Depreciation =
Net Domestic Product at Market Price ($ND{{P}{MP}}$)
$ND{{P}{FC}}$ .
$ND{{P}{MP}}$ - Net Indirect Tax =
$ND{{P}{FC}}$
$ND{{P}_{FC}}$ + NFIA = National Income