State the meaning of : (a) Problem of Double Counting (b) Operating Surplus (c) Compensation of Employees

Question

Accepted Answer

(a) Problem of Double Counting:
Double counting occurs when the value of intermediate goods is included more than once in national income calculation. This leads to overestimation of national income.

Solution: Use value added method - only count value added at each stage of production.

(b) Operating Surplus:
Operating Surplus is the income from property and entrepreneurship. It includes:
1. Rent: Income from property
2. Interest: Income from capital
3. Profit: Income from entrepreneurship
4. Royalty: Income from natural resources

(c) Compensation of Employees:
Compensation of employees is the sum of wages and salaries paid to employees along with social security contributions and pension contributions by employers. It includes:
1. Wages and salaries in cash and kind
2. Employer's contributions to social security
3. Pension contributions