Difficulties In Calculation Of National Income.pptx

economics

1. Difficulties In Calculation Of National Income Presented By R sai prashanth

2. INTRODUCTION Measurement of national income is of great importance, because it is a dependable index of prosperity and welfare of the country. However, measurement involves certain difficulties which have to be overcome so as to make national income estimates as accurate and representative as possible. In developing countries, difficulties in measurement of national income are prominently experienced.

3. THEORETICAL DIFFICULTIES

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

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

6. 3. INCOME 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 .

7. 4.EXPENDITURE INCURRED ON STATE ACTIVITIES The state which performs various functions and activities has to incur a huge expenditure. Generally expenditure incurred on a number of public services like, defence , public administration, maintenance of law and order etc.

8. 5.CHANGING PRICE LEVELS AND VALUE OF MONEY When the price level in the country rises, national income also shows an increase irrespective of the amount produced and when the price level in the country falls, national income also shows a decrease irrespective of the amount produced. National income is calculated in terms of money .

9. PRACTICAL DIFFICULTIES

10. 6.PROBLEM/POSSIBILITY OF DOUBLE COUNTING One of the greatest difficulties in calculation of national income is of double counting. It arises from failure to distinguish properly , between a final and an intermediate product. This is bound to inflate unduly the volume of national income and it may work out to be many times the actual. This would lead to over estimation of national income.

11. 7.EXISTENCE OF NON MONITISED SECTOR There exists a large non- monetised sector in developing countries like India. It is difficult to estimate such production and consumption while calculating national income . In many developing nations, there is this issue that goods and services are traded through barter

12. 8.LACK OF OCCUPATIONAL SPECIALIZATION There is generally absence or lack of a clear cut classification of occupations in many countries especially in developing countries. This lack of occupational specialization makes calculation of national income by product method difficult . For instance, besides cultivation, farmers may be engaged in supplementary occupations like dairy farming, poultry, cloth making, as labour in industry during the slack season etc.

13. 9.CAPITAL GAINS OR LOSSES Capital gains or losses, which accrue to the property owners by increase or decrease in the market value of their capital assets or changes in demand, are not included in the gross national product. Identifying Factor Incomes ie separating factor incomes and non factor incomes is also a problem.

14. 10.ILLITERACY AND IGNORANCE [Lack of maintaining proper accounts ] Majority of farmers and small producers in developing countries are illiterate, ignorant and not habituated and to keep any account of their productive activities . So they cannot give information about the quantity or value of their output.

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