INTRODUCTION:

The estimation of national income refers to the process of calculating the total economic output of a country over a specific period, usually a year. National income is a key indicator of a country’s economic performance and is typically measured using three main approaches: the Production (or Output) Approach, the Income Approach, and the Expenditure Approach. The precautions in the estimation of national income depends on the methods of national income.

Challenges in Estimating National Income

• Informal Economy: Difficulty in accounting for the informal sector and unrecorded transactions.
• Data Collection: Inaccuracies in data collection and reporting.
• Valuation of Public Services: Challenges in valuing non-market services like government services.

Precautions:

Precautions in estimating National income under product method

• value of goods produce for self consumption should be included
• own account production of fixed asset should be included
• imputed rent of owner occupied house should be included
• services of housewife will not be included
• sales and purchase of existing commodities or second hand good services are not included but any commission on their sale and purchase is included.
• sale and purchase of bond and shares are not included but any commission on their sales and purchase are included.

Precautions in estimating National income under income method:–

• Value of goods produce for self consumption should be included
• imputed rent of owner occupied houses should be included
• imputed value of services provided by the owners of production unit should be included
• transfer payments are not included
• illegal income are not included
• interest on national debt is not included
• sales and purchase of second hand good shares and bonds is not included but commission there of is included

 Precautions in estimating National income under expenditure method:

• goods meant for self consumption is included
• imputed value of owner occupied houses is included
• expenditure on intermediate product is not included
• expenses on second hand goods are not included
• expenses on financial assets like shares and bonds are not included
• transfer of payments of governments are not included.

also read: explain the features of macro economics.