DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH

Name : R. Mohan
Designation : Head of ccp
Branch : Commercial & Computer Practice
Institution : GMR. Polytechnic, Gajwel
Year/Semester : III year/ VI th semester
Subject : Business Economics II
Subject Code : CCP-602.
Topic : National Income
Sub-topic : Difficulties in Measuring National
income
Duration : 50 minutes.
Teaching Aids : PPT, Animation

CCP602.42 to 43 1
Objectives:
On completion of this period you would be
able to know :

 Difficulties in Measuring National Income

CCP602.42 to 43 2
Recap:

Calculation of NI
 Product method
 Income Method
 Expenditure Method

CCP602.42 to 43 3
Calculation of NI – Difficulties:

 Some conceptual problems crop up when we start

measuring the national Income

CCP602.42 to 43 4
 Contd:

Difficulties:
 Difficulty of defining the nation

 Non – marketed services

 Inapplicability of any one method

 Which stage to choose

 Paucity of statistics

CCP602.42 to 43 5
 Contd.,

 How to avoid double counting

 Identification of transfer payments

 Self – consumed of transfer production

 Multiple occupation

 Incorrect statistics

CCP602.42 to 43 6
Difficulty in defining the nation
NI not only includes income produced within the
country but also income earned in other countries by
way of
 Shipping charges
 Interest
 Insurance premium etc

Thus the definition of the nation goes beyond the

boundaries of the nation.,
CCP602.42 to 43 7
Non – marketed services

 Some commodities and services have economic

value but no market value.
 The difficulty arises whether such services should
be included in the national income or not if so, how
it is to be estimated
Eg. Services performed for love

CCP602.42 to 43 8
Inapplicability of any one method

 Difficulty arises regarding the method to be used,

in estimating the National Income

 Generally all the three methods are used

simultaneously in estimating national income

CCP602.42 to 43 9
Which stage to choose

The difficulty is regarding the stage of economic

activity in calculating national income whether
 Production
 Consumption
 Distribution

CCP602.42 to 43 10
Paucity of statistics
 Non – availability of statistical material
 Agriculture & small – scale industries are extremely
unreliable & incomplete.

CCP602.42 to 43 11
Double counting
 Implies the possibility of a commodity like raw
material or labour being included in national
income more than once

CCP602.42 to 43 12
How to avoid double counting

 Calculate only the value of all goods & services

that enter into final consumption

CCP602.42 to 43 13
Identification of transfer payments

 Transfer payments are associated with the income

method of NI calculation

CCP602.42 to 43 14
Solution for transfer payments
 Consider only the disposal income of an individual
or groups
 Personal incomes minus all transfer payments

CCP602.42 to 43 15
Self – Consumed production
 Substantial part of the output is not exchanged for
money in the market.
 Their value should be properly estimated and
taken into account

CCP602.42 to 43 16
Multiple occupation
 Highly scattered and unorganized sectors renders
the calculation of national income very difficult

CCP602.42 to 43 17
Incorrect statistics

 Social backwardness of the people

Eg.

Superstitious and Illiteracy,

Lack of cooperation from the people,

Problem of language renders calculation of NI difficult.

CCP602.42 to 43 18
Remedial measures

 Efforts are made to solve these difficulties so as to

find out correct estimates of NI and per capita
income in India

CCP602.42 to 43 19
Contd.,

Difficulties of Calculation of national income in

underdeveloped Economies (like India)
 Self – consumed, bartered production
 No systematic accounts
 Multiple occupations
 unreliase, fabricated data

CCP602.42 to 43 20
Self- consumed, bartered production

 Rough estimates are made

 Therefore cannot be relied upon

CCP602.42 to 43 21
No- systematic accounts

 Based on oral inquiries

 Therefore not dependable.

CCP602.42 to 43 22
Multiple occupations

 Little specialization of functions

 No occupational classification

 Engaged in a number of economic activities

simultaneously

CCP602.42 to 43 23
Unreliable, fabricated data

 Reliable statistics not available

 If available not dependable.

CCP602.42 to 43 24
Summary:
The problems which arise in estimating national
income are
 Definition of the Nation
 Selection of Proper Method
 Problem of double counting
 Identification of transfer payments

CCP602.42 to 43 25
Quiz:
1. Combination of inventory method and income method
is ______________
mixed method
2. _________________________________
National Income Committee pointed out
difficulties in measuring the NI in India.
3. National Income committee is appointed in ________
1949

5. Commodities and services which cannot be valued are

Non – marketed services
called __________

CCP602.42 to 43 26
Frequently Asked Questions

1. What are difficulties faced by an under-development

economics in calculations National Income.

CCP602.42 to 43 27
Assignment :
 Write short notes on
a) Marshall’s concepts of NI
b) Gross National product
c) Net National product
d) Per capita income
e) Personal income
f) Disposable Income
g) National Income

CCP602.42 to 43 28
 contd..:

1) Explain the three methods of measurement of NI

2) What are the special difficulties of measuring

national Income in less developed countries .

3) What is the importance of national income studies

4) Explain the methods of measuring National

Income.

CCP602.42 to 43 29