Saturday, August 11, 2012

Class XI, Principles of Economics, "Difficulties Faced while Calculating National Income"

Difficulties Faced while Calculating National Income

Some of the problems or the difficulties that are usually faced while calculating national income are as follows.
1. Problem of Definition
One of the greatest difficulties while calculating national income is that what should be included and what excluded with respect to the goods and services produced. As a general rule only those goods and services which are bought and sold i.e. enter into exchange must be only considered. For example the service of parents towards their children is not a part of national income on the ground that there is no investment of there market value. But allowances are made for some non-exchangeable goods and services e.g. the national product include the estimated value of food consume on farms. This creates a problem.
2. Calculation of Depreciation
Another problem is the calculation of depreciation. The main reason behind it is that both the amount and the composition of jour capital change from time to time. There are no standard or concept rules of depreciation that can be applied. Since depreciation is an estimate so correct deduction can be made until and unless these accurate depreciation estimates are not deducted from the estimate of net national product the net national income is bound to wrong.
3. Treatment of the Government
Government expenditures:
1. Defiance and administration expenditure.
2. Social welfare expenditure.
3. Payment of interest on national debts
4. Miscellaneous development expenditure.
The real problem that is faced relates to which of the above should be included in the national income.
4. Income from Foreign Firms
One of the major problem relates to the fact that weather the income arising from the activities of the foreign firms operating in a country should be included in the countries national income or not .With the growing trend of doing business globally has increased this problem to a great extant. However the I.M.F has given the viewpoint that the production and income of these foreign forms should go to the owning country while there profit must be credited to the parent concern.
5. Danger of Double Counting
Proper care is required for calculating national income so that double counting may not take place. This problem usually arises in those countries where proper documentation or statistics are not available.
6. Value of Inventories
Since it is not easy to calculate the value of raw materials, semi finished and finished goods in the custody of producers there fore it creates problems.


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