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National Income (Limitation (Shortening) of GDP concept (Inadequate…
National Income
Limitation (Shortening) of GDP concept
Inadequate information
Data could be incorrect and incomplete
Individual avoid paying taxes
Some productive goods & resources are used for personal consumption are not counted
GDP are underestimated
Unreported illegal activities are not counted
The problem of Double-counting
Intermediate product are trade a few times
GDP is overestimated
To avoid double counting, only count the value of final good and services
The externalities
Water ,air,noise pollution, toxic waste reduce the quantity of life, these costs are not deducted from GDP,thus our GDP is overestimated.
Non-market transaction
National income (Ni) counts only market transactions it excludes certain unpaid activities,which do not takes place in any market
The underground economy
Examples of activities- gambling,prostitution&illegal drugs are all final product whose values are determined in the market.
But they are not reported -hence not counted in (NI)
Composition and distribution of output
GDP does not provide information whether the mix of the goods and services is enriching
GDP does not tell whether the output is well distributed or not
Use of National income statistic
Measure of economic growth rate
% change in real GDP
compare growth performance over time
Compare standard of living among nation
Using per capita income of education
PCI= national income population
Assist in government planning
Strength and weakness of an economy
Compare economic performance among nation
Use economic growth rate of PCI
Measuring the gross domestic product (GDP)
The expenditure approach
The income approach
The product or output approach
The circular flow of income
Four economic group
Seller/producer/firm
Government sector
Buyer & consumers's > house hold sector
foreigners > foreigners sector