Social Sciences, asked by ibrahimkousar10, 1 year ago

Describe the difficulties in calculating the " National Income "?

Answers

Answered by shaivaj67
2
1] Transfer payments

According to some it is difficult to calculate the amount of transfer expenditure incurred on various schemes, such as, old age pension, unemployment allowance, gifts etc.

On one hand these earnings are a part of individual income, and on the other hand they are government expenditure. [However, this difficulty does not appear to be very serious. The state generally maintains proper accounts of such expenditure and ordinarily, there should be no difficulty in computing such expenditure].

Since these payments do not add to the economic/productive activities of the nation they are ignored while calculating national income.

2] Income of foreign [multinational] firms and persons working in foreign countries

a) There is also a problem regarding the income of multinationals or foreign concerns and people operating in a country. The problem is whether their income should be included in the country where they operate or in the county of their origin.

According to the IMF view-point, income of a foreign firm should be included in the national income of the country, where the firm actually undertakes production work.

However, profits earned by foreign firms are credited to the parent concern.

b) Difficulties arising because of external debt In case of such debts, payments have to be made on account of interest charges to the foreigners. To this extent national income declines. Therefore such payments and also receipts have to be properly maintained

c) There are also difficulties in calculating the volume of national income due to international trade. It is necessary to deduct from the domestic expenditure the values of goods and services imported and to add the value of goods and services exported to other countries. In other words the net difference between the value of imports and the value of exports should be properly adjusted.

3] Unpaid services

[Difficulty in computing national income because of self services]

Generally, national income is calculated in respect of goods and services which are exchanged for money, but there are a number of goods and services which are difficult to be assessed in terms of money. For example,

a) painting as a hobby; services which are rendered by a person to self, such as shaving, washing of clothes, maintain the gardens, services of housewives,

b) services provided out of love, affection, mercy, sympathy and charity etc.

The value of such services is not taken into consideration while calculating national income as remuneration is not given to them as it is difficult to keep a track of these activities and include them in national income.

If such services are received from other persons on payment of money, they are taken into consideration while calculating national income.

Therefore, to that extent, there is under estimation of national income. Therefore national income will be inaccurate and unreliable.

4] Income [money generated] from illegal activities

Income received through illegal activities, such as gambling, black marketing, theft, smuggling etc.

Such goods and services do have value and they do meet the needs of the consumers, but they do not contribute to the economic activity in the nation. Therefore income derived from such activities is not reflected in the total national income and to that extent there is a underestimation of the volume of national income.

5] Treatment of the government sector [expenditure incurred on state activities]

The state which performs various functions and activities has to incur a huge expenditure. The question is how this expenditure should be treated. Generally expenditure incurred on a number of public services like, defence, public administration, maintenance of law and order etc. Estimating the market value of such government services is difficult, as the real value of these services is not known. Therefore they are treated as final consumption expenditure and included in calculation of national income.

6] Production for self consumption [or difficulty on account of goods used for self consumption]

In several cases, certain goods produced by people are used for self consumption. For example

a) Farmers use some of the goods eg food grains, milk, vegetables fruits and other farm products for their own consumption. These goods do not enter the market. The value of such goods are estimated at their market price and included in national income as they contribute to the current year’s productive/economic activity.

b) It is also difficult to calculate the rental value of self occupied premises. Many individuals reside in their own houses and in such cases, it not easy to calculate the income which would accrue to its owner.

c) Same difficulty arises in case of public buildings.

7] Changing price levels and value of money

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ibrahimkousar10: Nice
Answered by tanugupta33
0
1. Types of goods and services:
There may be some goods and services which have a money value and so they are included in the national income but there are some goods and services which do not have a money flow.

2. Problem of double counting:
During the calculation of national income the value of final goods and services is only added but sometimes the value of raw materials is also added while calculating national income which results in double counting.

3. Excluded market transactions:
Their are many transactions which are excluded during computation of national income bcs they violate the rules for recognition of income.

4. Problem of imputed values:
There are certain products which are not brought in market so while calculation of national income values are imputed them which is not an easy task.

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