Question

Explain the precautions to be taken while using the income method of measuring national income.

Answer 1

The precautions to be taken while using the income method of measuring national income are as follows:

1. Transfer incomes or transfer payments like scholarships, gifts, donations, charity, old age pensions, unemployment allowance etc., should be ignored.
2. All unpaid services like the services of a housewife, or teacher teaching her/his child, should be ignored.
3. Any income from the sale of second-hand goods like cars, houses etc., should be ignored.
4. Income from the sale of shares and bonds should be ignored, as they do not add anything to the real national income.
5. Revenue received by the government through direct taxes, should be ignored, as it is only a transfer of income.
6. Undistributed profits of companies, income from government property and profits from public enterprises, such as water supply, should be included.
7. Imputed value of production kept for self-consumption and imputed rent of owner-occupied houses should be included.