(i) Explain any two precautions to be adopted while estimating National Income by Value-added 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 Value Added Method:
1. Do not include intermediate goods, their value is already in final goods, including causes double counting.
2. Do not include second-hand goods sales, counted in original year of production.

(ii) Higher GDP does not always mean higher per capita availability because:
- Population growth may outpace GDP growth, reducing per capita availability
- Nominal GDP increase may reflect price rise, not actual output increase
- Non-monetary transactions (household services, barter) are excluded from GDP
- Externalities (pollution costs, environmental degradation) are not subtracted
- Income distribution inequality means GDP growth may not benefit all sections