Problems involved in calculating (estimating) National income (Essay)
- 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.
- 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.
- 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.
- 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.
- It is difficult to measure depreciation: This makes it difficult to determine the net income because firms use different methods of measuring depreciation
- 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
- Poor social and economic For example inaccessible roads, poor communication networks and limited banking facilities limit the national income estimation exercise.
- 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.
- 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.
- 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.
- 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.
- It is difficult to determine the actual value of public utilities. This is because they are usually subsidized by the government
- It is difficult to identify inventories due to overlapping
- 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.
- 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.
- 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
CATEGORIES Economics
TAGS Dr. Bbosa Science
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