Discuss the difficulties of measuring national income

There are some conceptual problems that crop up when we start measuring the national income of a country. Some of these problems are enumerated below:

(i) Non Monetary Transactions: The first problem in National Income accounting relates to the treatment of non-monetary transactions such as the services of housewives to the members of the families.

For example, if a man employees a maid servant for household work, payment to her will appear as a positive item in the national income. But if the man were to marry to the maid servant, she would performing the same job as before but without any extra payments. In this case, the national income will decrease as her services performed remains the same as before.

(ii) Wages and salaries paid in kind: Additional payments made in kind may not be included in national income. But, the facilities given in kind are calculated as the supplements of wages and salaries on the income side.

(iii) Price changes: National income is the money value of goods and services, Money value depends on market price, which often changes. The problem of changing prices is one of the major problems of national income accounting. Due to price rises the value of national income for particular year appends to increase even when the production is decreasing.

(iv) Problem of Double counting: Only final goods and services should be included in the national income. But, it is very difficult to distinguish between final goods and intermediate goods and services. An intermediate goods and service used for final consumption. The difference between final goods and services and intermediate goods and services depends on the use of those goods and services so there are possibilities of double counting.

(v) Public services: Another problem is whether the public services like general administration, police, army services, should be included in national income or not, it is very difficult to evaluate such services.

(vi) Capital Gains or Loss: When the market prices of capital assets change the owners make capital gains or loss such gains or losses are not included in national income.

(vii) Petty Production: There are large numbers of petty producers and it is difficult to include their production in national income because they do not maintain any account.

(viii) Transfer Payment: Individual get pension, unemployment allowance and interest on public loans, but these payments creates difficulty in the measurement of national income. These earnings are a part of individual income and they are also a part of expenditures.