Question

Explain the problem of Double counting in estimating national income, with the help of an example.

Also explain two alternative ways of avoiding the problem​

Answer 1

Answer:

There are two methods to calculate national income, both of which have slightly different ways to deal with the double-counting issue. The first method just sums up the value added at each level of production. For example, for a company selling widgets, means that you only include the revenue minus raw material costs (since the raw material costs was the value-added of one of your suppliers, but not you; these goods are also called “intermediate goods”) to get the gross value-added. This avoids double-counting by subtracting other people’s value-added from the revenues of a company/production process.

The second method simply considers the market price (“value”) of final consumption goods and services directly, without looking at the whole production process. This avoids double counting by considering only the end product and does not consider intermediate goods.

Many national statistical agencies use both methods, but the first method (value-added) is most often relied upon as being more precise since the government has an incentive to keep fairly good records using the value-added method for tax purposes.

Explanation:

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Answer 2

Explanation:

counting of the value of commodity more than once is called Double Counting. This leads to

Theoverestimation of the value of goods and services produced. Thus, the importance of avoiding double counting lies in avoiding overestimating the value of domestic product. ... (ii) Value Added Method.

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