Difficulties in the Measurement National Income

National Income is a top line figure for the any country’s economy; However, Arranging statistics in a reliable data source need considerable attention and there are some hurdles in measurement of national income.

Duplication

A major threat to national income computing is replication of value of the product. While measuring the NI of a country for a specific period the value of products and services should be included at final stage (finish good). The value of intermediate or those goods which are used for preparation of final goods will not be included; as including the value of product at different stages can cause the duplication error and in this situation NI will be over-estimated. Therefore, either the price of final good be included or the value-added method be adopted.

In the measurement of NI, the non productive transactions make the task difficult. Most economists are of the view that the productive transactions consist of final purchase of newly produced goods. In our economic life most of the transactions are of non productive natures which are briefly discussed below.
Securities Transactions of Secondary market:

The sale and purchase of stocks in the secondary market doesn’t generate any economic activity, these transactions are just transfer of ownership. National Income goes over-estimated by including these transactions in national income computation. The result cannot depict true results; therefore to measure NI such transactions should be excluded.

Government Transfer Payments

Government is an important player of three sector economy and its payments to  public without rendering services are considered as non productive payments, theses are known as transfer payments e.g., payment of social security, unemployment allowances, pensions or scholarships to the students. All Such transactions make the NI calculation complicated.

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Private Transfer Payments

In addition to government transfer payments, there are private transfer payments e.g., dowry, charity and pocket money. As these payments are rewarded without any productive service so including such type of nonproductive expenditure in the national income will not give the true picture of NI.

Sale of Used Goods

The trading of second hand commodities like car, TV, or refrigerator cannot be counted for the current year NI as these products were included in the NI when sold first time as new finish goods, there will be duplication if counted again.

Reliable Statistics Availability

National Income measurement is a complicated and delicate process. The availability and processing of data is a sensitive issue, especially in developing countries availability of exact figures are difficult which makes the calculation of accurate NI very complex.  In National Income measurement the value of all finish goods from all factors of production is calculated carefully by keeping all the constraints in mind.