Question

State with reason whether you agree or disagree with the following statement:

Precautions are to be taken while using the product method of measuring national income.

Options

• Agree

• Disagree

Answer 1

I agree with the above statement.

Reasons:

The following precautions are to be taken while using the product method of measuring national income:

1. To avoid double counting, only the value of final goods and services must be taken into account while calculating national income.
2. Goods used for self-consumption by farmers or manufacturers should be estimated by guesswork. The imputed value of goods produced for self-consumption is included in national income.
3. Indirect taxes included in the market prices are to be deducted and subsidies given by the government to certain products should be added for accurate estimation of national income.
4. While evaluating output, changes in the price level between different years must be taken into account.
5. The value of exports should be added and the value of imports should be deducted.
6. Depreciation of capital assets should be deducted.
7. The sale and purchase of second hand goods should be ignored as it is not a part of current production.