Difficulties in measuring national income, Managerial Economics

SOME DIFFICULTIES IN MEASURING NATIONAL INCOME

National Income Accounting is beset with several difficulties. These are:

a.       What goods and services to include

Although the general principle is to take into account only those products which change hands for money, the application of this principle involves some arbitrary decisions and distortions. For example, unpaid services such as those performed by a housewife are not included but the same services if provided by a paid housekeeper would be.

Many farmers regularly consume part of their produce with no money changing hands. An imputed value is usually assigned to this income. Many durable consumer goods render services over a period of time. It would be impossible to estimate this value and hence these goods are included when they are first bought and subsequent services ignored.  Furthermore, there are a number of governmental services such as medical care and education, which are provided either 'free' or for a small charge.  All these provide a service and are included in the national income at cost. Finally, there are many illegal activities, which are ordinary business and produce goods and services that are sold on the market and generate factor incomes.

b.       Danger of Double Counting

The problem of double counting arises because of the inter-relationships between industries and sectors. Thus we find that the output of one sector is the input of another. If the values of the outputs of all the sectors were added, some would be added more than once, giving an erroneously large figure of national income. This may be avoided either by only including the value of the final product or alternatively by summing the values added at each stage which will give the same result.

Some incomes such as social security benefits are received without any corresponding contribution to production. These are transfer payments from the taxpayer to the recipient and are not included. Taxes and subsidies on goods will distort the true value of goods. To give the correct figure, the former should not be counted as an increase in national income for it does not represent any growth in real output.

c.         Inadequate Information

The sources from which information is obtained are not designed specifically to enable national income to be calculated.  Income tax returns are likely to err on the side of understatement. There are also some incomes that have to be estimated. Also, some income is not recorded, as for example when a joiner, electrician or plumber does a job in his spare time for a friend or neighbour. Also information on foreign payments or receipts may not all be recorded.

Posted Date: 11/28/2012 5:57:29 AM | Location : United States







Related Discussions:- Difficulties in measuring national income, Assignment Help, Ask Question on Difficulties in measuring national income, Get Answer, Expert's Help, Difficulties in measuring national income Discussions

Write discussion on Difficulties in measuring national income
Your posts are moderated
Related Questions
Direct intervention   The government can also intervene directly in the economy to see that its wishes are carried out.  This can be achieved thorough: a.     Price and i

A  monopolist has two types of customers. There are 100 of Type A, who will every pay up to $10 for a single unit of the good, and 50 of Type B, who will every pay up to $8. Neithe

Neoclassical Theory The neoclassical theory of economic growth began its career in the fifties and since the mid fifties a sizeable literature has developed. The theory largely

Measures to control inflation An inflationary situation can effectively be addressed/tackled if the cause is first and foremost identified.   Governments have basically three

What are the essential conditions for perfect completion? Two essential conditions for perfect competition are as given below: a. Various producers, none of whom have a hug

Neo Classical vs Keynesian School We know that Keynesian economics was propounded as a revolution against the then  prevailing orthodoxy  of  the classical school.  In  time,

A firm is employing 100 hours of labor and 50 tons of cement to produce 500 blocks. Labor costs Rs 4 per hour and cement costs Rs 12 per ton. For the quantities employed MPL = 3 an

Topic:  Company Case Study and Industry Analysis   Instruction:  1) choose a company;                     2) recognize the market industry type;                     3)


present a detailed discussion of the principles of managerial economics