State any two precautions to be adopted while estimating National Income by Expenditure Method. Distinguish between 'Final goods' and 'Intermediate goods'.

Question

Accepted Answer

Precautions for Expenditure Method:
1. Exclude intermediate goods to avoid double counting
2. Exclude transfer payments (pensions, scholarships)
3. Exclude second-hand sales (only new production)
4. Exclude financial transactions (shares, bonds)

Distinguish between Final goods and Intermediate goods:

Final goods: Goods that are used for final consumption or investment. They are not resold or used as inputs in further production. Example: A car purchased by a consumer.

Intermediate goods: Goods that are used as inputs in the production of other goods. They are resold or processed further. Example: Flour used by a baker to make bread.