Output Method :

(i) This method is also known as inventory method or product method. Under this method, the economy is divided into different sectors such as agriculture, mining, manufacturing, small enterprises, commerce, transport communication and other services.

(ii) The output or product method is followed either by valuing all the final goods and services, produced during a year, at their market price or by adding up all the values at each higher stage of production, until these products are turned into final products.

(iii) While using this method, utmost care must be taken to avoid multiple or double counting. In order to do so, output method suggests two alternative approaches for the measurement of GNP namely, the Final Goods Approach or Final Product Approach and the Value Added Approach / the Value Added Method.

(iv) In the method of Final Goods Approach, the value of all final goods and services produced in primary, Secondary and tertiary sector are included and the value of all intermediate transactions are ignored. For example: the price of bread includes, the cost of wheat, making of flour etc. Hence, only the value of final product, i.e. bread should be considered to avoid double counting.

(v) In the method of Value Added Approach, the value added at each stage of the production process is included. The difference between the value of final outputs and inputs at each stage of production is called the value added.

For Example: A farmer produces and sells wheat for Rs. 1000/- to the miller. Miller sells flour for Rs. 1500/- to the baker. Baker sells bread for Rs. 1800/- to the retailer/merchant. Retailer sells bread for Rs. 2000/- to the consumers. So, the value added by farmer (Rs. 1000/-), miller (Rs. 500/-), baker (Rs. 300/-) and retailer (` 200/-), i.e. total of Rs. 2000/- should be included in the national income.

(vi) Output method is widely used in the underdeveloped countries, but is not considered that reliable because of the margin of error.

(vii) In India, this method is applied to agriculture, mining and manufacturing section including handicrafts, but it is not applied for transport, commerce and communicating sector.