Question

Explain the income method of estimating national income. What precautions need to be taken while using this method​

Answer 1

Explanation:

9 Main Precautions that must be followed in the Measurement of National Income through Income Method

Transfer payments are not included in estimating national income.

Imputed rent of self-occupied houses are to be included in calculating national income.

Illegal money through smuggling etc.

Answer 2

The method calculates the national income considering the payments made to the primary production factors.

• The Income Method estimates public pay from the side of payments made to the essential elements of creation as lease, wages, interest and benefit for their beneficial administrations in an accounting year.
• In this manner, public pay is determined by including factor salaries created by all the delivering units situated inside the homegrown economy during an accounting period.

• Various precautions in the method include -

1. Factor incomes earned by providing productive services are included, transfer incomes like old-age pension, etc. are excluded.
2. Sale and purchase of second-hand goods are excluded as they are unincluded in current year production.
3. Exclusion of Income from illegal activities like smuggling, black-marketing.
4. Direct taxes, for example, income tax which are paid by the workers from their pay rates and corporate expense, which is paid by the business entity from its benefit, are incorporated.