Precautions for Estimating National Income - Output Method, Expenditure Method and Income Method

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Precautions for Estimating National Income by Value Added Method

(i) Intermediate goods are not to be included in the national income because such goods are already included in the value of final goods.

(ii) Sale and purchase of second-hand goods are not included because they were included in the year in which they were produced and they do not add to the current flow of goods and services.

(iii) Production of services for self-consumption is not included because these services are produced and consumed at home and never enter the market place that is why they are called a non-market transaction.

(iv) Production of goods for self-consumption will be included as they contribute to the current output of goods and services.

(v) The imputed value of owner-occupied houses should be included like rent is to be included in the calculation of national income.


Precautions for Estimating National Income by Expenditure Method 

(i)  Expenditure on only final goods and services should be included in the national income estimation while intermediate consumption expenditure should not be included. 

(ii) Expenditure on commission on sale and purchase of second hand goods, as a new service is being rendered.

(iii)  Imputed value of the goods and services produced for self consumption are included. 

(iv) Expenditure on shares and bonds is not included. This is because these are mere financial assets and do not reflect any production activity of the goods or services. 

(v) Expenditure on transfer payments by the government should not be included. This because such payments are not related to any production activity in an economy.


Precautions for Estimating National Income by Income Method 

(i) Interest paid by production units on capital borrowed is included in national income as the capital is used for investment purpose.

(ii) Imputed value of rent of owner-occupied houses is included as house renders services.

(iii) Monetary value of production of goods and fixed assets for self-consumption by the producing units will be included in the national income as these are productive services and add to the flow of goods and services.

(iv) Include free services provided by the owners of the production units.



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