(i) Explain any two precautions to be adopted while estimating National Income by Expenditure method. (ii) "Higher Gross Domestic Product (GDP) always means higher per capita availability of goods in the economy." Defend or refute the given statement as the index of welfare of the people of that country. (i) Distinguish between Stock and flow variables, using suitable examples. (ii) Explain the components of 'Profit' as per Income Method of estimating National Income (NNP_FC).

Question

Accepted Answer

(i) Precautions for Expenditure Method:
1. Do not include expenditure on intermediate goods, already embedded in final goods value, including them causes double counting.
2. Do not include transfer payments, they are not connected with productive activity and involve no value addition.

(ii) Higher GDP does not always mean higher per capita availability because:
- If population grows faster than GDP, per capita availability falls
- GDP may rise due to inflation without actual output increase
- Composition of GDP matters, increase in military goods does not improve consumer goods availability
- Distribution matters, GDP may concentrate in hands of few

Thus, Real GDP per capita with equitable distribution is a better welfare indicator.