On the basis of the given data, estimate the value of National Income : State any three precautions to be taken while estimating National Income by Expenditure Method.

Question

Accepted Answer

Using Expenditure Method:
GDP_MP = PFCE + GFCE + GDCF + Net Exports
From table: PFCE = 200, GFCE = 110, GFCF = 30, Net Exports = -40, Change in Stock = 20
GDCF = 30 + 20 = 50
GDP_MP = 200 + 110 + 50 + (-40) = 320
Depreciation = 15, NIT = 60 - 15 = 45
NDP_FC = 320 - 15 - 45 = 260
NNP_FC = 260 + (-40) = Rs. 220 crore

National Income = Rs. 220 crore

Precautions for Expenditure Method:
1. Do not include intermediate goods expenditure as it leads to double counting.
2. Do not include transfer payments as they are not connected with productive activity.
3. Do not include purchase of second-hand goods as they were counted in original year.