Problems in estimating national income. What are the problems involved in measuring national income 2019-01-07

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What are the conceptual problem in estimation of national income in India? Discuss.

problems in estimating national income

A surprise omission from national income accounts is interest on government bonds. Which is the best measure of economic growth of a country? This method is also called the Factor Cost Method. It has proved to be more practical also. However, the main differences between the two are as under: Microeconomics Macroeconomics 1. In countries like India non-monetised transactions are considerable.

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Methods of Estimating National Income (3 Methods)

problems in estimating national income

O Disposable Income : Disposable income or personal disposable income means the actual income which can be spent on consumption by individuals and families. For example, most road­side small traders, retailers as also many business enterprises in the unorganised sectors mainly sole proprietorship organisations or single-owner firms and self-employed persons do not keep proper records of their incomes and expenses. But the process of production uses up a certain amount of fixed capital. This is included in national income. Another example of transfer is the subsidy received by producers of milk from the government.


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What are the conceptual problem in estimation of national income in India? Discuss.

problems in estimating national income

If care is not taken in estimating the income, the cost of the commodity is likely to be counted twice or thrice and national income will be overestimated. Measuring of National Income Problem 5. Now the question is as to which of its price, whether actual or black market one, should we take into account, and afterwards when it is transferred from one person to another, which of its value according to its average age should be included in national income? In this case, national income is greater than domestic income. But the certain services such as services of a housewife, social services, etc. However, income received in the form of transfer payments are not included. Double counting takes place when a commodity or raw material is being included twice in the calculation of national income.

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5 Major Difficulties that are faced in the Calculation of National Income

problems in estimating national income

But expenditure on transfer payments is not added, because these payments are not made in exchange for goods and services produced during the current year. Thus the Pigovian definition gives rise to a number of paradoxes. The prices are set to 100 or 1 in the base year. Similarly, for the purpose of arriving at the Real Per Capita Income, this very formula is used. The firms sell their final output to consumers — the households.

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What precautions should be taken in estimating national income by expenditure method? from Economics National Income Accounting Class 12 CBSE

problems in estimating national income

A lot of arbitrariness is involved in the process of measuring it. Although some attempts were made to estimate national incomes as long ago as the 17th century, the systematic keeping of , of which these figures are a part, only began in the 1930s, in the United States and some European countries. Thus depreciation lowers the national income. The distinction is based on whether the good is purchased for final use or for use in further production. The value obtained is the gross domestic product.


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5 Major Difficulties that are faced in the Calculation of National Income

problems in estimating national income

Therefore, we sum up the total amount of money people and organisations spend in buying things. The Value of Leisure 3. It is concerned with the determination of equilibrium level of income and employment supply, inflation, unemployment, etc. The Pigouvian Definition : A. The process of calculation of national income by using the above discussed three methods has been illustrated in a summarised way, with hypothetical data of an imaginary economy, in Table 4 A, В and C.

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8 major difficulties that are faced in Estimating National Income

problems in estimating national income

If the marginal propensity to save of the rich is greater than that of the poor, then a redistribution of income from poor to rich will raise a Neither consumption nor saving out of a given income. Some of these difficulties are given below: 1 Problems of Definition : What should we include in the National Income? This is an example of business transfer payments. Year July-June ft financial year Apr-Mar d Any of these e None of these 49. Second-hand Goods and Assets: Another problem arises with regard to the sale and purchase of second-hand goods and assets. This is nothing but net domestic product at market prices.

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Economics: Difficulties in Measuring National Income

problems in estimating national income

If this information is considered to be the basis of judgement, then the judgement will suffer from inaccuracy. In the National Income and Product Accounts, these owner-occupiers are viewed as being in the business of renting their homes to themselves. Also, if the attitude measures were too general, then only general behavior could be predicted. Its central problem is determination of level of income and employment. Add the value of exports or the income earned abroad and deduct the value of imports. Thus the value of total output of the entire economy as per Table 1, is Rs.

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Problems relating to national income estimation, Microeconomics

problems in estimating national income

According to the market price method, stock appreciation increase in inventory is valued at current market prices of goods held in inventories. Main article: Arriving at a figure for the total production of goods and services in a large region like a country entails a large amount of data-collection and calculation. The pizza has many ingredients at different stages of the supply chain, for example tomato growers, dough, mushroom farmers plus the value created by Dominos themselves as they put the pizza together and get it to the consumer. But this is not always done, and therefore, there are cases of double counting. Therefore, its undistributed profit will also be less than what it should be. Let us consider manufacturing of biscuits.

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Measuring National Income

problems in estimating national income

Production activities not only lead to a permanent loss of several mineral deposits, but also lead to degradation of many reproducible resources. Every year, billions of pounds worth of activity is not declared to the tax authorities. It is study of individual economic units of an economy. The problems of addition increase manifold when we consider the question of estimating national income in real terms. It does not take into account the financial exchange of shares and stocks because their sale and purchase is not real investment. Macroeconomic is a contribution of various economic factors su … ch as total employment, exchange, productivity, income, wealth, inflation, interest rate, balance of payments, monetary policy, savings, investment, international trade and international finance.

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