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5. NNPFC = NI = 1190

    PI = NI - (CT + UP) + 4

         = 1190 - (170) + 310

         = 1330

6. PI = 1330

    DI = PI - PT

         = 1330 - 130

         = 1200

(D) Methods of Measurement: Measurement of national income, though important, is a very complex activity. Double counting, omissions, statistical errors etc. may cause considerable inaccuracy in the measurement of income.

It was only during the last two decades of the 19th century that systematic attempts were made to measure national income. Since then economists have from time to time introduced various devices to widen the coverage and to reduce the degree of inaccuracy in the process. In particular, the efforts of Nobel laureates like Dr. Richard Stone of the U.K. and Dr. Simon Kuznets of the U.S. are worth mentioning. Dr. V.K.R.V. Rao of India has also carried out useful research in this respect. Yet the complex nature of national income accounting demands three different methods of measurement to ensure the greatest degree of accuracy. These are product, income and expenditure methods. These three methods are complementary to each other and all of them are employed according to convenience.

i) Product method: Under this method the market values of all goods and services produced are aggregated to arrive at the national income value. If proper records are maintained of every small and private productive activity then this method should provide satisfactory information. But this method has limited significance since it suffers from certain drawbacks. First, under product method care has to be taken to include values of the final products. The values of intermediate products should be excluded in order to avoid double counting. For instance, if we consider the case of garment manufacturing industry; the raw materials pass through various stages before it is transformed into the final product. These include production of cotton thread, cloth and garments. Therefore we have to include in the national income only the value of the ready-made garments as final products, plus the value of some amount of cotton thread and cloth which might have been used for direct consumption. Second, the product method emphasizes production of tangible goods. Therefore it is possible that useful services such as those of teachers, musicians etc. get excluded or underestimated. Third, under product method, part of the goods produced such as grains, vegetables, fruit etc. may not be marketed at all but used for self-consumption by the household members of the producers. Evaluating the contribution of non-marketed products and to add this to the national income becomes a difficult task. Hence the value of this method is limited.

ii) Income method: This is the simplest and most convenient method of computing national income. As per convention all possible incomes earned, fall under one of the four categories. These are wages (W), rent (R), profits (P) and interest (i). When these four categories of income are aggregated at the national level and added up, we get the total of the national income.

NI = W + R + P + (i)

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Index

3. 1 Macro Aggregates
3.2 Unemployment
3.3 Inflation

Chapter 4

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