Methods of calculating national income - Value Added/Product Method

Correct answer: A. Check the calculation and data, then include it with its negative sign if genuine

Explanation: Negative net value added can occur when compensation and other factor costs exceed the unit’s measured gross value added, especially during losses or abnormal operating conditions. The figures should first be checked for classification, valuation, and data errors. If the negative result is genuine, it must be included with its sign rather than arbitrarily set to zero.

Correct answer: A. Double counting of intermediate goods and stock adjustment

Explanation: Under the value-added method, the sum of value added at every production stage should equal the value of final output, provided the same period and valuation basis are used. A mismatch commonly arises when intermediate goods are counted more than once or when changes in inventories and stock adjustments are omitted or recorded incorrectly. Therefore, option A is the appropriate first diagnostic check.

Correct answer: A. Check for errors and, if genuine, include it with the negative sign

Explanation: A negative NVA at factor cost may indicate that the unit’s factor payments and depreciation exceed its value added, although calculation or classification errors must first be ruled out. If the negative result is genuine, national accounting does not arbitrarily replace it with zero. It is included in the aggregate with its negative sign so that total national income is not overstated.