Problems of measuring national income.
The problems involved are either conceptual or statistical Conceptual
These are problems arising from interpretation i.e what should be excluded or included when estimating national income. The following are some of the conceptual problems.
Determine the boundary of production. It is difficult to decide and determine what should be included in national income and what should be excluded or omitted e.g there are some activities that may be termed as illegal in other countries and yet these activities tO provide satisfaction for example gambling , drug taking distillation of illicit wage etc.
The problem of imputation. This arises where there is need to assign value of non marketed output in me substance sector is for home consumption there is need to estimate the country which such families would get if they were to buy on the open market .However this methods is not accurate as it may lead to over or under estimation of value .
Income earned through illegal activities eg smuggling practicing, gambling etc. The problem is that such incomes are not included in national income and yet such goods and services have and meet the needs of the consumer so by omitting them we under estimate the country's national income valves.
Double counting. This is arises due to the failure to distinguish between final and intermediate products, thus in pricing, goods may be counted more than once hence a exaggerating country's national income value e.g. flour used by a bakery in an intermediate products and that by households final product
Transfer payments. At times it is hard to distinguish between transfer payments and income earned.
Individual include in the calculation of national income is a difficult question on the other hand, these earnings are apart of individuals income and on the other government expenditure. To avoid this difficult they are normally dedicated from national income
Unpaid services: The activities of housewives e.g cooking cleaning , washing caring after the child by mother are not included in income statistics became they are not sold out-and have no market prices, yet if house girls and other people employed they would be paid their incomes.
Calculate of national income in terms of money. It does not include the leisure foregone is the process of production .Thus national income does not lake into consideration the actual cost of production of a commodity.
Statistics problems
These are the problems involved in the process of calculation of national income problems which and some discrepancies in the process of estimation
They include:
- Inadequate statistics data and incomplete information. There is hardly any information about how many people are employed and what they earn. Also data on personal expenditure and income is provide adequate most businessmen fear to provide adequate information about their business and must of them are unregistered therefore the data and information available maybe unreliable.
- Determining income from abroad. It is difficult is to determine the net property income from aboard due to scanty information available foreigners in our country / incomes and information avails foreigners in our country fear to disclose their incomes and expenditure likewise our nationals abroad may not disclose true income for fear of taxation.
- Determine depreciation cost It is hard to estimate current depreciation where any value of machinery This is due to the fact that different firm use different methods and this pose a great problem
- Government services The government provides services such as education, health, police and military services. It is hard to determine the actual value of public utilities.
- Inflation problem Changes in price affect the value and size of the country's GNP in order to avoid exaggerated figures in GNP there is need to adjust figure according to the rate of inflation But the rate inflation is just a rough estimate .Thus the national income data may end being misleading and unreliable
- Commission and omission errors due to the poor system of record keeping some data may be omitted and not included in national income and yet it is supposed to be there This is referred to as error of omission. Commission error arises due to oversight. It includes data which is not recorded. This data which is over valuation of our income statistics
- Possibility of double counting on the statistics and peoples expenditure hence the statistics may not reflect reality.