State any two precautions that are taken while estimating National Income by Expenditure Method. Distinguish between Gross Domestic Product at Market Price and Net Domestic Product at Market Price.

Question

Accepted Answer

Precautions for Expenditure Method:
1. Expenditure on intermediate goods should not be included as it is already part of final expenditure, including it leads to double counting.
2. Transfer payments should not be included as they are not connected with any productive activity.

Difference between GDP_MP and NDP_MP:
GDP_MP = Gross Domestic Product at Market Price (includes depreciation)
NDP_MP = Net Domestic Product at Market Price (excludes depreciation)
NDP_MP = GDP_MP - Depreciation
Gross value includes replacement cost of worn-out capital, while net value shows the true addition to capital stock.