Problems relating to national income estimation, Microeconomics

Problems relating to national income estimation:

Changing prices of goods and services. Prices of goods and services do change from one period to another. This makes comparison of national income estimates from year to year difficult because the yearly estimates are in current prices of the various years (nominal terms)

Multiple or double counting: This is the problem of intermediate goods, intermediate expenditure and transfer payments. There is the likelihood of valuing, for example, both the corn and kenkey, counting expenditure on shoes as well as the leather that was used in making them and counting incomes earned not for productive activities (transfer payments)

Marketability of goods:- Since national income is the money value of goods and services produced in a given period, the problem arises in connection with goods and services that are not exchanged through the market.

Depreciation: - when capital is used in production, it wears and tears. To account for this, capital allowance must be deducted from the GNP to arrive at the NNP. A problem arises of accurately estimating depreciation. If care is not taken, national income will be overestimated or underestimated.


Inadequate statistical data: - one basic problem of estimating national income is the lack of statistical data. Individuals, as well as the businessmen, do not keep proper records of incomes, output, expenditure, etc.

Posted Date: 1/3/2013 12:06:15 AM | Location : United States







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