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Questions
Explain the precautions that should be taken while estimating national income by expenditure method.
State any two precautions that are taken while estimating National Income by Expenditure Method.
Solution
Precautions were taken while estimating national by expenditure method
- Expenditure on intermediate goods will not be included in the national income as it already included in the value of final expenditure. It if it is included again by mistake, it will lead to double counting of expenditures.
- Transfer payments are not included because such payments are not related to any productive activity and there is no value addition.
- Purchase of second-hand goods will not be included because such expenditures have already been included when they were originally purchased. Those goods do not affect the current flow of goods and services. Hence any commission on those goods is included as it is a payment made for productive service.
- Purchase and financial assets will not be included because those transactions do not contribute to the current flow of goods and services.
- Expenditure on own account production such self-consumption and imputed value of owner-occupied houses will be included in the estimation of national income since these are productive services.
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