The correct answer is the Inflation method. Explanation & Key Takeaways: • There are three known methods by which national income is determined. These are: • Value added method • Expenditure method • Income method • The value-added method is also known as the production method or output method. • Its primary objective is to calculate national income by taking the value added to a product during the various stages of production into account. • Therefore, the formula for calculating the national income by the value added method can be expressed as: National income (NI) = (NDPfc) + Net factor income from abroad (NDPfc = Net Domestic Product at Factor Cost) • The expenditure method of national income calculation is based on the expenditures taking place in the economy. • The third method to calculate national income is the income method. • It is based on the income generated by the individuals by providing services to the other people in the country either individually or by using the assets at their disposal. • The income method takes the income generated from land and capital in the form of rent, interest, wages, and profit into consideration. Related Concepts: • Circular Flow of Income: • The circular flow means the unending flow of production of goods and services, income, and expenditure in an economy. • It shows the redistribution of income in a circular manner between the production unit and households. • These are land, labour, capital, and entrepreneurship.