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Nuk Natiendl pyveduck ak “tathoe Cost is febla.v» “eyed Ao Oy" tS apiorl Antone” UU papergria (5) Date: / / 5) Personal Tacome © The _nabional income anid is Ahn aj — th piopl ak ww County in sfosen ra | dunk inte ” Luo rant ash poh, ikwal| Coed personal income PT = Notional Income — Qndiskibuted Corporate par = Corporate income joxey — Boal Sushi Contulouyoos Hons kes paujenens @ Gace al Vorlistubuhd oi Oo. prolihs tonidn Ode nor ‘| dista buted arson RNG Hove tanh inskad ‘hu Ne :] Wed doy oye inwenkentin te V = by Cowpora te iiomi tox 7 Thy tox paid om Corporate Hows ON Wun ones Q Social Siunily Lonhibubont Ose Cpotriloution, made by Conlon Yoroonds providun Rund , insusane ele iN) d) Freudian pours Qe he qausruns Wn is HONE i hy Wr ou} to puoge. Ex" Denston , Sulosi cea, Scholow hip ie Economic Theory & Public Finance 44 “Difficulties in calculation of National Income problems involved in al and statistical oduct method and There are many conceptu income method, pr measuring national income by the expenditure method. rson who rents a house to another he house himself, will the nal income. The © Owner-Occupied Houses: A pe earns rental income, but if he occupies tl ces of the house-owner be included in natio servi : Juded in national income services of the owner-occupied house are inc as if the owner sells to himself as a tenant its services. For the purpose of national income accounts, the amount of imputed rent is estimated as the sum for which the owner-occupied house could have been rented. The imputed net rent is calculated as that portion of the amount that would have accrued to the house-owner after deducting all expenses. ¢ Problem of Double Counting: Another difficulty is of double counting usually associated with the inventory method. Double counting implies the possibility of a commodity like raw material or labour being included in national income more than once, eg, a farmer sells maize worth rupees two hundred to a mill-owner, the mill owner further sells the maize flour to a wholesale dealer, who ao sells it to consumer; if we calculate it at every stage, its money value will increase to ei: i in national income has ee cane a es i wage o hundred rupees only. The best way to avoid this difficulty is to calculate only the value of all goods and services that enter into final consum: adie tiie 4 F ; ose Wale intermediate and final products is very complex and - oe te computation of national income. ‘penditure incurred on the purchase of goods and as like expenditure on Wages and salaries mployees who perform i sery i i Ices like police, ption. The problem of For example, services by the of government military, fire protection Economic Theory & Public Finance 45 ete. are all included in GNP estimates, « Intermediate and Final Goods: The greatest difficulty in estimating national income by product method is the failure to distinguish properly between intermediate and final goods. There is always the possibility of including a good or service more than once, whereas only final goods are included in national income estimates. This leads to the problem of double counting which leads to the overestimation of national income. « Second-hand Goods and Assets: Another problem arises with regard to the sale and purchase of second-hand goods and assets. We find that old scooters, cars, houses, machinery, etc. are transacted daily in the country. But they are not included in national’ income because they were counted in the national product in the year they were manufactured. If they are included every time they are bought and sold, national income would increase many times. Similarly, the sale and purchase of old stocks, shares, and bonds of companies are not included in national income because they were included in national income when the companies were started for the first time. Now they are simply financial transactions and represent claims. But the commission or fees charged by the brokers in the repurchase and resale of old shares, bonds, houses, cars or scooters, etc. are included in national income. For these are the payments they receive for their productive services during the year. Self-employed Persons: Another problem arises with regard to the income of self-employed persons, In their case, it is very difficult to find out the different inputs provided by the owner himself. He might be contributing his capital, land, labour and his abilities in the business, But it is not possible to estimate the value of each factor E 47 conomic Theory & Public Finance activities have value and satisfy the wants of the people but they are sidered productive from the point of view of society. not con it is very difficult to estimate such activities because their However, definitions or to society. But in countries like Nepal and Monaco where notions may change from generation to generation or from society gambling is leg: alised, it is included in national income. Consumers’ Service: There are a number of persons in society who render services to consumers but they do not produce anything tangible. They are the actors, dancers, doctors, singers, teachers, musicians, lawyers, barbers, etc. The problem arises about the jnclusion of their services in national income since they do not produce tangible commodities. But as they satisfy human wants and receive payments for their services, their services are included as final goods in estimating national income. Government Services: In calculating national income by expenditure method, the problem of estimating government services arises. Government provides a number of services, such as police and military services, administrative and legal services. Should expenditure on government services be included in national income? If they are final goods, then only they would be included in national income. On the other hand, if they are used as intermediate goods, meant for further production, they would not be included in national income. There are many divergent views on this issue. One view is that if police, military, legal and administrative services protect the lives, property and liberty of the people, they are treated as g ods and hence form part of national income. If they help in the ctioning of the production process by maintaining peace curity, then they are like intermediate goods that do not enter final Pus aid ‘onal income. 48 Economic Theory & Public Finance ge cation as to which to make a clear demar In reality, it is not possible i! he productive process. service protects the people and which protects ¢ ‘ 5; fi 5 d are Therefore, all such services are regarded as final goods and @ included in national income. ¢ Inventory Changes: Inventory adjustments i.e., changes in the stock of capital goods or final products are also to be taken into account while computing national income. All inventory changes (or changes in stocks) whether positive or negative are included in national income. The procedure is to take changes in physical units of inventories for the year valued at average current prices paid for them. The value of changes in inventories may be positive or negative which is added or subtracted from the current production of the firm, Remember, it is the change in inventories and not total inventories for the year that are taken into account in national income estimates. ¢ Price Changes: National income by product method is measured by the value of final goods and services at current market prices. But prices do not remain stable. They rise or fall. When the price level rises, the national income also rises, though the national production might have fallen. On the contrary, with the fall in the price level, the national income also falls, though the national production might have increased. So price changes do not adequately measure national income. To solve this problem, economists calculate the real national income at a constant price level by the consumer price index. * Depreciation: Depreciation implies a reduction in the value of capital stock or capital goods due to wear and tear, constant use etc. During the process of production the we ar and tear or capital consumption occurs, resulting in, i at the same time, a decline in the relative efficiency of the plant and equipment on However, the problem of correct a difficult task e,g,, account of obsolescence. reste y estimating depreciation is equally ine may be used more intensively in one ERS Sack ell 50 : eee —“
