This price includes £21,000 for all the costs of production £6,000 for components, £10,000 for assembly and £5,000 for marketing plus £4,000 for profit. B Problems in Product Method : The following problems arise in the computation of national income by product method: 1. Now the question is as to which of its price, whether actual or black market one, should we take into account, and afterwards when it is transferred from one person to another, which of its value according to its average age should be included in national income? Before its publication, the study of national income remained confined to a few academic scholars. Along with this, the structure of national income has also undergone a change, the tertiary sector has emerged as the dominant sector of the economy. But if he spends the amount for using it as a taxi, it is investment expenditure.
This is nothing but net domestic product at market prices. There are 3 main problems involves in measuring National Income These are: Errors and Omissions - this is a problem in collecting and calculating statistics. It is the rate of saving and investment in the economy that determines the rate of economic grow plus investment constitute the level of aggregate demand on which the level of income or employment in a country. Since what they are paid is just the market value of their product, their total income must be the total value of the product. Simply, it is the total amount of income earned by the citizens of a nation. The income method works by summing the incomes of all producers within the boundary.
A housewife renders a number of useful services like preparation of meals, serving, tailoring, mending, washing, cleaning, bringing up children, etc. These income components sum to net domestic income at factor cost. First, avoiding double counting, the goods and services which can be measured in money are included in national income. National income estimates are the most reliable macroeconomic indicators of an economy. This fairly large document has a wealth of information on the meaning of the national income and output measures and how they are obtained. There are basically two ways of measuring national economic activity: as the money value of the total production of goods and services during a given period usually a year or as the total of incomes derived from economic activity after allowance has been made for capital consumption.
Both should produce the same result. Govt takes to deficit or surplus budget to arrest depression or inflation in an economy. Final output In accounting terms, only the value of final output is recorded. The higher the per capita income, the higher the economic welfare of the country. The Planning Commission in India also kept in view the national income estimates before formulating the five-year plans. Double counting means that a particular commodity or service like raw material or labour, etc.
Similarly, Pigou is of the view that if a man marries his lady secretary, the national income diminishes as he has no longer to pay for her services. Personal income is never equal to the national income, because the former includes the transfer payments whereas they are not included in national income. Some fixed equipment wears out, its other components are damaged or destroyed, and still others are rendered obsolete through technological changes. Wages and Salaries paid in Kind: Another problem arises with regard to wages and salaries paid in kind to the employees in the form of free food, lodging, dress and other amenities. There are several important uses of national income statistics and, therefore, there is great need for their regular preparation.
We are able to assess whether the inter-sectoral imbalances re widening or narrowing. A recession is officially defined as a period of at least two consecutive quarters of negative output growth. Typically, goods are produced in a number of 'stages', where raw materials are converted by firms at one stage, then sold to firms at the next stage. Thus this method establishes the importance of intermediate products in the national economy. Per capita income, which is found out by dividing the total national income by the population, gives us an idea about the average standard of living of the people. National income accounting shows the gross income, output, saving and consumption etc. But it is not possible to estimate the value of each factor input to production.
But the commission or fees charged by the brokers in the repurchase and resale of old shares, bonds, houses, cars or scooters, etc. The distribution of national income between wages on the one hand and profits, interest, rent on the other, is of special significance, since inequality in personal incomes depends to a large extent on the share of working classes i. However the terms are used loosely. These are government expenditures but they are not included in national income because they are paid without adding anything to the production process during the current year. Inventory Changes: All inventory changes or changes in stocks whether positive or negative are included in national income. In retrospect, these represented zones of substantial overvaluation and undervaluation, respectively, for U. In a report released in November 2013, former U.
Rent to land owners and resource supply, Net interest from domestic business, proprietors income from incorporated business, sole proprietorships, partnerships and cooperatives. The first official estimates of national income and expenditure for Ireland for the period 1938-1944 were published in 1946. This is because the employees would have received money income equal to the value of free food, lodging, etc. Fifth, the payments received under social security, e. If we add net income from abroad to domestic income, we get national income, i. One person sometimes works as carpenter and at another time as mason.