So long as a good or service has a market value, its production is added to the national income estimates. There are two main reasons for this. Costs are associated with pollution and other aspects of industrial activity that damage the environment. Some of the statistical difficulties in measuring national income include: Unrealistic and Inadequate Statistics Especially in the underdeveloped and developing countries, it is difficult to obtain statistics due to the problem of illiteracy. Of course, the goods and services made available by governments, such as national defence, are not sold in markets. So great work for informing us of the possibilities and following a certain path.
Problem of Definition of National Income : - for the purpose of calculating national income, only the paid goods and services are included. A counter entry of the same amount is treated as a financial transaction a reinvestment of earnings abroad, in shares and other equities and not as a payment of property income. Unless correct deductions are made for depreciation from G. It includes the following items: i Private consumption expenditure: It includes all types of expenditure on personal consumption by the individuals of a country. When the price level rises, the national income also rises, though the national production might have fallen. Cost of Environmental Damage 4.
So this problem arising due to the fluctuations in market prices has to be solved while calculating national income. Hence, it is difficult to get the correct information about the production. We count all goods and services produced by the nationals of the country or businesses owned by them regardless of where that production physically takes place. Problem of Transfer Payments : -National Income does not include transfer payments such as ole age pensions, scholarships, interest paid on national debt, etc. National income estimate is made on the basis of primary data relating to incomes and values of goods produced. Thus this method establishes the importance of intermediate products in the national economy.
Wages and Salaries paid in Kind: Another problem arises with regard to wages and salaries paid in kind to the employees in the form of free food, lodging, dress and other amenities. The national income of a country consists of only final goods and services. Owner-occupied Houses: A person who rents a house to another earns rental income, but if he occupies the house himself, will the services of the house-owner be included in national income. From the data pertaining to wages, rent, interest and profits, we learn of the disparities in the incomes of different sections of the society. Inventory Changes: All inventory changes or changes in stocks whether positive or negative are included in national income. For instance, the paper used as office stationery is a final product, but if the paper is used in a book, it becomes an intermediate product.
Finally, the traders sell to the final consumers at Rs. To avoid this problem the value of only final goods and services taken into consideration. It can be debated as to whether depreciation should be estimated on the basis of the cost of acquisition and technical life of the capital assets, or it should be estimated on the basis of replacement cost. Government makes payments in the form of pensions, unemployment allowance, subsidies, interest on national debt, etc. But, it is very difficult to distinguish between final goods and intermediate goods and services. Amit Bhaduri comments, the valuation of services of many public goods like a museum or a park becomes highly problematic. Measuring of National Income Problem 4.
Even if an individual keeps his house vacant he has to pay tax on notional rent. Far example, a teacher teaches in the school and also takes private tuitions in extra time, or a farm-laborer works on the farm and also works in a factory in the off season, and so on. One problem for instance is that goods in inventory have been produced therefore included in Product , but not yet sold therefore not yet included in Expenditure. Second, according to this definition when only such commodities as can be exchanged for money are included in estimation of national income, the national income cannot be correctly measured. These are government expenditures but they are not included in national income because they are paid without adding anything to the production process during the current year.
Calculation of incomes : In underdeveloped countries, people are not specialized in a particular occupation. Value of Production for self-consumption is to be counted while measuring national income. . Methods of Measuring National Income : There are four methods of measuring national income. So expenditure on the purchase of a smuggled camera is not final expenditure and is thus not a part of national income. It focuses on finding the total output of a nation by finding the total amount of money spent.
The Underground Economy The underground economy consists of illegal and uncleared transactions where the goods and services are themselves illegal such as drugs, gambling, smuggling, and prostitution. This is because the rental income or the imputed rent which the house-owner gets is for making investment on the new house. Measuring of National Income Problem 6. In reality, it is not possible to make a clear demarcation as to which service protects the people and which protects the productive process. The reason is that it is difficult to measure the market value of this output.