Solution

The three methods of identifying the GDP of a nation are:

1. Expenditure Method
2. Income Method
3. Value added Method or Product Method
Expenditure Method: In the expenditure method, national Income is calculated based on the expenditure done on the purchase of final goods and services that are produced in the economy.
The formulae for calculating GDP is

GDP = C + I + G + (X – M)

Where,
C=Consumer spending on goods and services
I=Investor spending on business capital goods
G=Government spending on public goods and services
X= Exports
M= Imports

Now,

GDP – Depreciation = Net Domestic Product
NDP – Net Indirect Tax – = NDP
NDP + NFIA = National Income
Where NDP= Net Domestic Product
NFIA = Net Factor Income from Abroad

Income Method: This method is used to determine national income generated from the factors of production like capital, labour, land and profits of organization. Another factor added is mixed-income which is income generated from self-employed persons, farming and sole proprietorship firms.

Therefore national income can be calculated as:
Net Domestic Income = Compensation +Interest + Rent + Profit + Mixed income
Net Domestic Income + NFIA (Net Factor Income from Abroad) = Net Domestic Income.

Product Method: In this method which is also known as value added method, the income is measured as per value addition by the products of firms. It is calculated as the summation of Gross Value Added in the primary, secondary and tertiary sectors.

Net Domestic Product = GDP – Depreciation
NDP at Factor Cost = NDPMP – Net Indirect Tax
NDP at factor cost + NFIA = National Income
Where NDP= Net Domestic Product
NFIA = Net Factor Income from Abroad