Question

State whether item given below is included in estimating national income. Give a reason in case to justify your answer.

Expenditure on the construction of express highway.

Answer 1

Expenditure on the construction of an express highway is included in estimating national income. The reason is that such construction expenditure is considered an investment expenditure which adds to the productive capacity of the economy. It is a payment for the creation of a new capital asset during the current period, thus reflecting current production of goods and services. Therefore, in the national income accounts, expenditures on construction of express highways are included as they are part of investment expenditure which contributes to the production of new capital goods within the year. This is consistent with the treatment of similar items such as expenditure on the construction of new houses or other fixed capital formation, which are included in national income as investment expenditure.