This problem arises due to price level changes, i. Firms that have higher costs than others by producing inefficiently will go out of business as those that are more efficient prosper. You need to be careful so that there is no logical inconsistency in your points. Those who have saved money will be able to buy more than previously, and banks will earn more real interest on loans made. Importance of National Income Analysis : The national income data have the following importance: 1.
The author is a Forbes contributor. Thus we find that the total gross value added of an economy equals the value of its gross domestic product. If the farmer were to sell his entire produce in the market, he will have to buy what he needs for self-consumption out of his money income. Second, income received on account of investment in foreign countries is included in national income. About the Author Colette Meehan is a freelance writer based out of Ardmore, Pa. Another example of transfer is the subsidy received by producers of milk from the government. Such information is a boon to government and private enterprises.
Money invested earns more money. There is always the possibility of including a good or service more than once, whereas only final goods are included in national income estimates. Inventories are not a homogeneous entity. The same is the result. But expenditure on transfer payments is not added, because these payments are not made in exchange for goods and services produced during the current year. Â· Credit facility to agriculture: Agriculture sector is back bone of Pakistan.
And it is easy to make the case that how rich you live should determine how much you should be taxed. National income estimates provide valuable information and guidance for formulating the economic plans. Hence these estimates are considered as the main basis for devising economic policies by the government. Different government entities employ various taxes and rates on their citizens. Second, according to this definition when only such commodities as can be exchanged for money are included in estimation of national income, the national income cannot be correctly measured. Measuring of National Income Problem 7.
Decisions are made about what is to be included where, but minor discrepancies will always arise. Detailed national income data provide the basis for such planning exercises. Advantages of National Sales Tax A national sales tax, if implemented, would replace the income tax. The economic activity of a country could rise, while welfare could possibly have fallen. Therefore, its undistributed profit will also be less than what it should be. The more money that is spent on taxes, the less money there is to be saved.
Although a sales tax would be better than an income tax, we might easily make do with just if the government functioned with a smaller budget. Wages and Salaries paid in Kind: Another problem arises with regard to wages and salaries paid in kind to the employees in the form of free food, lodging, dress and other amenities. Due to the huge wealth level, it is easy to collect taxes. They use a system of national accounts or national accounting developed by Simon Kuznets in the 1960s. In other words, it is the sum of gross value added. We discuss them separately in the light of the three methods: A Problems in Income Method : The following problems arise in the computation of National Income by income method: 1.
Low-income families might also suffer under a national sales tax. A flat tax also would close credits, exemptions and loopholes that are often abused. Examples of such incomes are incomes from smuggling, un-authorised gambling, black marketing and other illegal and immoral activities. Thus this method establishes the importance of intermediate products in the national economy. Third, the Pigovian definition is applicable only to the developed countries where goods and services are exchanged for money in the market.
These refer to net national income and net national expenditure, which ultimately equal each other. These days the national income data are regarded as accounts of the economy, which are known as social accounts. Capital Gains: The problem also arises with regard to capital gains. In reality, it is not possible to make a clear demarcation as to which service protects the people and which protects the productive process. And the national income accountants have to face certain problems associated with the valuation of inventories.