Difficulties in the Measurement of National Income

Measurement of National Income

To compute the national income of a country is difficult problem because of following difficulties.

Measured in Money

National income is always measured in money but there are a number of goods and services which are complicated to be evaluate in terms of money e.g. painting as a hobby by an individual, the bringing up of children by the mother.

Double Counting

The greatest difficulty in calculating the national income is of double counting, which arises from the failure to distinguish properly between a final goods and services are taken into account, and that is not so easy task.

Illegal Activities

Income earned though illegal activities such as gambling, or sale of intoxicants etc. is not incorporated in national income .Such good and services do have value and meet up the needs of the customers. But by leaving them out, the national income works out to less than the actual.

Transfer Payments

Then there occur the obscurity of including transfer payments in the national income. Individuals get unemployment allowance and interest on public loans, but whether these should be included in national income is a difficult problem. On the one hands, these earnings are a part of individual income and on the other, they are government expenditure. To evade this complexity, these are subtract from national income.

Capital Gains or Losses

Capital gains or losses which accrue to property owners by increase or decrease in the market value of their capital assets or change in demand are excluded from the G.N.P became such changes do not result from current economics activities.

All Inventory Changes

All  inventory changes whether negative or positive are included in the G.N.P.

Capital Reduction

When we deduct capital decrease from G.N.P, the resulting measure is N.N.P.

Price Changes

Another difficulty in calculating national ,income is that of price changes which fail  keep stable the measuring rod of money for national income .When the price level in the country rises, the national income also shows an increase even though the production might have fallen.On the contrary , with a fall in price level ,the national income shows a decline over though the production might have gone up.

Under Estimation Of Real National Income

Moreover, the calculation of national income in terms of money is under-estimation of real national income. It does not include the leisure foregone in the process of production of commodity.

Public Services

In calculating national income ,a good number of public services are also taken which cannot be estimated corrected . How should there public and military services be estimated? In the days of war, the force are active, but during peace they rest in cantonments.