Question

write two precautions in calculating national income method?

Answer 1

$\huge\mathfrak\red{Answer}$

Explain the precautions that should be taken while estimating national income by

expenditure method.

a) The expenditure on second hand goods shall not be included.

b) The expenditure on intermediate goods should not be included.

c) The expenditure on transfer payments should not be included.

Answer 2

Answer:

Precautions of National Income Method

(a) Avoid transfers: National income includes only factor payments, i.e.,

payment for the services rendered to the production units by the owners of

factors. Any payment for which no service is rendered is called a transfer,

not a production activity. Gifts, donations etc. are main examples. Since

transfers are not a production activity it must not be included in national

income.

(b) Avoid Capital Gain: Capital gain refers to the income from the sale of  second hand goods and financial assets. Income from the sale of old cars,  old house, bonds, debentures, etc. are some examples. These transactions  are not production transactions. So, any income arising to the owners of  such things is not a factor income.

(c) Include Income from Self Consumed Output: When a house owner lives  in his house, he does not pay any rent. But infact he pays rent to himself.  Since, rent is a payment for services rendered, even though rendered to the  owner itself, it must be counted as a factor payment.

(d) Include free services provided by the owners of the production units:

Owners work in their own unit but do not charge salary. Owners provide

finance but do not charge any interest. Owners do production in their own

buildings but do not charge rent. Although they do not charge, yet the

services have been performed. The imputed value of these must be

included in national income.