Question 9:State and discuss any two precautions to be considered while estimating national income by Expenditure Method.
The correct answer is – The Expenditure Method is one of the three methods used to estimate the national income of a country. It involves adding up the expenditures on goods and services produced within a country in a particular period. However, there are certain precautions that need to be considered while estimating national income using the expenditure method. Here are two such precautions:
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Treatment of intermediate goods: While estimating the national income using the expenditure method, it is important to ensure that intermediate goods are not counted twice. Intermediate goods are goods that are used in the production of other goods and services. They are not the final products sold to consumers, but they are used to produce the final products. Thus, it is important to exclude the value of intermediate goods from the total value of final goods and services to avoid double-counting. To avoid this, the value of intermediate goods and services should be subtracted from the total value of output.
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Treatment of transfers and gifts: The second precaution to consider while estimating national income by the expenditure method is the treatment of transfers and gifts. Transfers are payments that do not involve the production of goods and services, such as welfare payments, social security payments, and gifts. They are not included in the national income as they do not represent any productive activity. However, some transfers can indirectly affect the national income, such as government transfer payments that increase consumer spending. In such cases, it is important to make the necessary adjustments to ensure that the national income is not overstated.
