Difficulties in Measurement of National Income - Economics Notes Grade XI

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Difficulties in Measurement of National Income - Economics Notes Grade XI

Difficulties in Measurement of National Income

There are many difficulties in measuring the national income of a country accurately because it is a multi-dimensional concept. So, the calculation of national income itself is a complex and challenging activity. While measuring the national income, there arise some conceptual and statistical difficulties which are as follows:

1. Problems of double counting
While calculating national income, only final goods and services should be included, but some goods may be final for one sector and intermediate for another sector. For example, sugarcane is final goods for the agricultural sector but it may be intermediate goods in the industrial sector for producing sugar. Thus, there is a very high possibility of double counting.

2. Existence of non-monetized sector
In a developing country, there is still a barter system in backward areas. Thus, all agricultural outputs do not reach to the market. Either it is consumed at home or exchange for other goods in the village. Hence, it is difficult to calculate the national income accurately.

3. Illegal income
Different people can earn income through illegal activities, such as black marketing, dacoits, gambling, smuggling, etc. But these incomes are not included in national incomes which make national income less than the actual amount.

4. Calculation of depreciation
Capital depreciation should be deducted to find net national income. But present depreciation rate of capital goods cannot be accurately measured because of having a long life.

5. Transfer payment
Transfer payment like pension, unemployment allowances, disable allowances, etc. are apart of individual income but these are also a part of government expenditure. So, it creates problem whether it should be included in N.I. or not.

6. Frequently change in price
National income is the money value of goods and services. Money value depends upon the market price of goods and services. But the market price of goods and services often changes which creates the problem in measuring national income.

There are other difficulties in the measurement of national income such as lack of occupational specialization. Lack of statistical data, lack of illiteracy and ignorance, income earned from abroad.

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