Difficulties in measurement of National Income

Difficulties in the Measurement of National Income

a) Danger of Double Counting

Only final goods must be included while all intermediate goods must be excluded. Thus to avoid double counting, we only sum up the value added at each stages of production.

b) Unpaid Activities

Generally, unpaid services such as housewife services or voluntary services should be excluded.

c) Treatment of Government Expenditure

Any payment by the government that do not give rise to any economic activity will not be considered as government expenditure, and hence must be excluded in the calculation of National Income. These expenditure are merely transfer payments.

d) Inadequate and Inaccurate Information

Some important information may not be available due to illiteracy and ignorance of the people to keep proper record. In many cases, false information on income are given to avoid paying high taxes.

e) Depreciation and Stock Valuation Method

Different depreciation and stock valuation methods used will produce different results and hence different National Income figures.

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