Question

What precautions are necessary while estimating national income by value-added method?

Answer 1

1. Include the value of self-consumption items, such as food grains produced by farmers for their families. Self-consumed goods are considered income in kind. The market does not sell these goods, so they lack a market price. Their worth can be calculated or assumed.
2. Included should be the own-account creation of fixed assets, such as factory structures by business owners and residential buildings by households.
3. The imputed rent for owner-occupied homes ought to be included. A large number of people own their homes. They enjoy housing services just like others who remain in rented homes, but they don’t pay any rent. The value of housing services is calculated using the market rent of comparable accommodations in order to account for the services that homeowners enjoy. Imputed rent is the term used to describe this expected rent.
4. The national income does not include housewives’ unpaid, love-driven services like cooking and childcare, as they have no market value. Housewives create and consume these services at home, in contrast to market services like restaurant meals or daycare, which are part of national income. Although it is theoretically possible to make an imputation, practical practice refrains from doing so for simplicity.
5. National income measures the value of current production. We exclude the sale of second-hand goods, such as old cars or houses, as they do not contribute to current production. However, the current year includes the broker's commission for selling such goods, as it constitutes a service.
6. Bond and share sales and purchases are omitted from national income since they merely reflect the transfer of an asset and do not add to national revenue. However, as previously mentioned, national income covers the services offered by brokers.