Problems involved in calculating (estimating) National income (Essay)

Problems involved in calculating (estimating) National income (Essay)

  1. Inadequate accurate   and unreliable statistical data.  There is always inadequate information  due to  limited  facilities  like  computers  and  lack  of  proper  record  keeping  by  producers   and consumers.
  2. Double counting. This refers  to  counting  of  the  value  of  the  item  more  than  once  when estimating national income. It is as a result of failure to distinguish properly between the final goods and intermediate goods. It also occurs when government gifts and pension which should be excluded as transfer payments are included in national income figures. This leads to over estimation of national income figures.
  3. Difficulty in determining the boundary of production. This is concerned with which items should be included or excluded when estimating national income. This is particularly a problem due to failure to define some services for example whether child labour or the services of a house wife should be included or excluded from the estimation of national income.
  4. Price changes (Inflation). This is a problem because price changes affect the value of national income. When there is inflation, national income shows an increase yet the real production of goods and services might have reduced hence over estimation of national income.
  5. It is  difficult to measure   depreciation:    This makes  it difficult to determine  the net  income because firms use different methods of measuring depreciation
  6. Problem of non-marketed      It is difficult to estimate the monetary value of goods and services which are not put in market.  Such values have to be imputed for inclusion in the national income estimation.  For  example  the  services  house  wife,  owner  occupied houses, leisure foregone when income is earned and subsistence output
  7. Poor social and economic      For example inaccessible roads, poor communication networks and limited banking facilities limit the national income estimation exercise.
  8. Omitted market     In an economy, a large number of transactions take place in the market but not all transactions are included in estimating national income.  Omission   of transactions leads to under estimation of national income figures.
  9. Inadequate  skilled and qualified personnel.  There is a limited number of staticians, economists and accountants required to collect, compute analyze and interpret national income figures.
  10. Difficult in measuring Net income from abroad. This is difficult  to determine   since  import  and exports   are  carried   out  by  many   individuals,   with  little  data   available   to  verify   the,  amount imported,  and  exported  by private   firms  and     At times it is difficult   to identify   the smuggled         commodities.    In addition, some   nationals    stay abroad   and take up jobs   illegally, making it difficult for the government to determine   their actual    contribution   to national   output.
  11. Problem of timing of production. It is very difficult to   determine   output produced   in the country during a particular     This is true especially   for agricultural   output in which it becomes   hard whether   to consider the time of production   or the time of harvesting   when estimating   national income.
  12. It is difficult to determine the actual value of public utilities. This is because they are usually subsidized   by the government
  13. It is difficult to identify inventories due to overlapping  
  14. It is difficult to identify incomes from illegal activities such as smuggling,  gambling, prostitution etc. Such income is not supposed to be included when estimating national income.
  15. Inadequate facilities and equipment used to collect, analyze and estimate    For example there is shortage of funds and computers required to carry out the exercise successfully.
  16. Political instabilities and insecurity in some parts of the country.  This  makes  it difficult   to access some parts  of the country  to collect data for purposes  of estimating  national  income
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