If those products were counted at every stage, they would be included many a time in the national product. The national income is, therefore, underestimated by excluding the services of a housewife. This is nothing but net domestic product at market prices. In this case, national income is greater than domestic income. While calculating the national income now-a- days, estimates are prepared in accordance with the two criteria laid down in this definition. This is one of the ways to avoid double counting.
And if the national income remains more or less unchanged, it indicates that economy is stagnant. All of the transactions in an economy can be looked at in this way, giving us three ways to measure national income. The procedure is to take changes in physical units of inventories for the year valued at average current prices paid for them. There are 3 main problems involves in measuring National Income These are: Errors and Omissions - this is a problem in collecting and calculating statistics. That is why when the owner of a firm marries his lady secretary, her services are not included in national income when she stops working as a secretary and becomes a housewife. If we add net income from abroad to domestic income, we get national income, i. Which one is a better measure? National income estimates suffer from several drawbacks and this highlights the need to improve their data availability and methods of computation.
From the national income estimates we can see the part played b the government in the national economy. First, in the light of the definition put forth by Pigou, we have to unnecessarily differentiate between commodities which can and which cannot be exchanged for money. . However, in practice minor differences are obtained from the three methods for several reasons, including changes in inventory levels and errors in the statistics. Production activities not only lead to a permanent loss of several mineral deposits, but also lead to degradation of many reproducible resources. These measurements are usually referred to as the National Income Accounts.
In one country there are several individuals who consume a particular good and that too at different places and, therefore, it is very difficult to estimate their total consumption in terms of money. But there is one exception. However, the market value of goods and services is different from the earnings of the factors of production. All the problems faced in the compilation of price index numbers are encountered in this case. Every country exports to or imports from certain foreign countries. Thus due to the dearth of the reliable adequate statistical data, the national income estimates in India is still subjected to high degree of error.
Measurements of the flow of goods and services to an economy over a given time span give rise to several meaningful sums, rather than one. In situation two, the two households perform same domestic services for each other and pay each other in money terms. Mahalanobis and had Prof D. Since 1955 the national income estimates are being prepared by Central Statistical Organisation. Definitions of National Income : The definitions of national income can be grouped into two classes: One, the traditional definitions advanced by Marshall, Pigou and Fisher; and two, modern definitions. If we add net income received from abroad to the gross value added, this gives -us, gross national income. Services have a potential to grow at the fastest rate followed by trade, industry and agriculture.
Third, the durable goods generally keep changing hands leading to a change in their ownership and value too. Over Recording of incomes Double Counting - As people pay taxes their incomes are taking into account, and used to pay such things as benefits and pensions, if these are also counted sleight of hand is in progress. Goods meant for Self-consumption: In under-developed countries like India, farmers keep a large portion of food and other goods produced on the farm for self-consumption. Self-employed Persons: Another problem arises with regard to the income of self-employed persons. This is clearly not the case, so any future second-hand sales are not included when valuing national income. Note that all three counting methods should in theory give the same final figure.
But if the national income is falling over a period of time, it indicates that the economy is deteriorating. Economic Models: The economists propound short-run as well as long-run economic models or long-run investment models in which the national income data are very widely used. The extent of inequality in a country can be measured from the national income data collected through the income distribution methods. They may be final goods for one industry and intermediate for others. Government expenditure on pension schemes, scholarships, unemployment allowances etc. Further, measuring national income is essential for various purposes that include projection about the future course of the economy, assisting government as the basis to design or redesign suitable development policies, helping firms in forecasting future demand for their products and facilitating international comparison.
For this reason, investment spending comes in for close scrutiny in the study of business cycles. Defence and Development: National income estimates help us to divide the national product between defence and development purposes. It includes the following items: i Private consumption expenditure: It includes all types of expenditure on personal consumption by the individuals of a country. But in an under-developed country like India, a huge portion of our total output is still either being consumed at home or being bartered away by the producers in exchange of other goods and services leading to the non-inclusion of huge non-monetized output in the national income estimates of the country. These are the kinds of questions to which the national accounts provide approximate answers. Thus, the figures of national income and per capita income indicate. Historical background of national income …………………………………………………3 1.