Question

Explain five limitations of using the product method in measuring National Income of a country​

Answer 1

Answer:

1 First, national in curve figures are not accurate.

2 The ‘black economy’ distorts the figures. This is the name given to work that is not reported to the authorities.

3 A rise in national income may not mean a rise in living standards. This is because the rise may occur as a result of increased spending on items such as defence, which do not impro­ving living standards.

4 The accounts only measure paid activities. They, therefore, exclude do-it-yourself activities and the work of housewives. If over a period of years there is a rise in such activities, then this will not be shown in the official figures and comparisons over several years will be inaccurate.

5 National income often rises in time of war, or the threat of war, because money is spent on weapons. This will push up GNP, but the people may be acutely short of goods to buy.