Theory question 108
National IncomeSection B: answer three questions only from this section.
(a) Explain the methods of measuring the national income of a country (b) State any three problems associated with measuring national income.
Show the model answer
(a) Output (product) method: add the value of final goods and services produced by all sectors in a year, or the value added at each stage, to avoid double counting
Income method: add the incomes of all factors of production (wages, rent, interest, profits); exclude transfer payments
Expenditure method: add total spending on final goods and services: consumption + investment + government spending + (exports − imports)
(b) Any three: double counting
Inadequate/unreliable statistics and illiteracy
Large subsistence sector not recorded
Price changes (inflation)
Valuing depreciation and stocks
Treatment of transfer payments and unpaid services
Net income from abroad hard to estimate
Explain all three methods and how each avoids double counting.