There are three methods to calculate GDP which are output approach, income

approach and expenditure approach. The GDP then can be used to determine the national
income. However, our government often uses income approach and expenditure approach to
determine the national income.

First of all, I would like to explain what output approach is.

Output approach is referring to the total value of the final goods and services
produced by all firms in country. The method to calculate GDP is to sum the total output or
production from all 3 sectors in the economy which are primary sector, secondary sector and
tertiary sector. To avoid double counting, we do not calculate the total value of intermediate
goods. For example, in meat production, the value of the good from the farm may be $10,
then $30 from the butchers, and then $60 from the supermarket. The value that should be
included in final national output should be $60, not the sum of all those numbers, $90.
Therefore, we can either use the value of the final product or the sum of value added to it at
each stage of production. To determine the value added between businesses, the price at
which the product is sold by the seller is deducted from the price it was bought for from the
supplier.

National income can be valued either at market prices or factor costs. At market price,
goods and services are valued at the actual prices that consumers pay to get the products or
services. It includes indirect taxes but excludes subsidies. At factor cost, this is the sum of all
incomes earned by all factors of production in their contributions to the production of goods
and services in the form wages, rent, profit and interest. To calculate the GDP at factor cost,
indirect taxes must be deducted and subsidies must be added. However, to get the GDP at
market price, subsidies must be deducted and indirect taxes must be added.