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PROBLEMS OF MEASURING NATIONAL INCOME, Siti Nur Athirah binti Mohd Kamal …
PROBLEMS OF MEASURING NATIONAL INCOME
Entails a large amount of data-collection and calculation because it involves the measurement of the total product and services over a large region.
Problems of non-monetized sector
The existence of a large number of non-monetized activities in these countries, especially in the agriculture sector, makes computation of the national income more challenging
The outputs are either consumed directly by farmers or exchanged for other goods and services which tends to make it more difficult to measure the national income
Underground Economy
Transactions contributing to production such as illegal trade and tax-avoiding activities, are not reported, thus causing the GDP to be underestimated
Avoid paying higher taxes may cause a loss in government income revenues and sales
Non-market transactions
A number of productive work is carried out in the economy which do not involve payment
During these transactions, no money changes hands and subsequently no payments are recorded
For example, food grown in backyard plots, home repairs, clothes sewn at home , and any other instances of do-it-yourself goods and services that people make or perform for themselves, their families or friends are not calculated in the GDP
Problems of expertise and modern machinery
The lack of professionals, such as statisticians, researchers, programmers and analysts, is a major problem in third world countries.
The services of these professionals are very important in estimating the national income data accurately with minimum errors
Data collected on national income, regardless of the method used, has to be analyzed using sophisticated machinery
Problems of double counting
Double counting in national income will appear when both values of final goods and intermediate goods are included
To avoid this problem, the GDP includes only the value of final goods and ignores intermediate goods together
Inclusion of the value of intermediate goods will amount to multiple counting which will distort the value of the GDP
Siti Nur Athirah binti Mohd Kamal
2019831738
KBA2462A