PROBLEMS OF NATIONAL INCOME STATISTICS

National income statistics served as a good measure of economic activity in a country.

Despite this, National income statistics is faced with various problems, including:

1. Inaccurate data: It may be difficult to obtain accurate information on national income, especially for developing countries like Nigeria.

This is because a huge percentage of enterprises in developing countries do not keep proper records of their earnings, and the government does not keep important statistics on the country's economic activities.

Furthermore, errors may occur in inputting national income figures, resulting in national income data that does not accurately reflect the market value of products and services produced in a country.

2. It may be difficult to compute: it may be difficult to calculate the market value of some items such as free goods or services rendered for free, self-owned houses.

Generally, it is difficult to measure the market value of goods and services that are not traded in the market.

3. Existence of shadow economy: Any transaction that is concealed from the government constitutes a shadow economy.

Shadow economy consists of economic transactions not reported to the government.

Such transactions are not reported to the government for a variety of reasons, including the fact that they are unlawful or the desire to avoid paying taxes on them.

Prostitution, for example, is prohibited in several countries. However, prostitution continues to be prevalent.

However, because prostitution is illegal, any money gained from it will not be recorded in the national income data.

Therefore, national income statistics may not truly reflect the market value of goods and services produced in a country.

4. Non-monetary transaction: To a large extent, National income reflects only monetary transactions bought and sold in the market.

However, some economic transactions do not require the use of money, such as barter transactions

A barter transaction refers to the sale of goods for goods and service for services without the use of money.

This would invariably affect national income statistics as national income only measures the market value of monetary transactions of goods and services.

5. Double counting: This occurs when the value of the same product is counted more than once during national income computation.

When the value of the same product is counted more than once during the computation of national income, this is known as double counting.

Even though national income statisticians only count the value of final items, double counting can still occur, especially when it is difficult to distinguish between final goods and intermediate goods.

6. International differences: Comparing national income data across countries can be difficult because each country has its method of calculating national income.

7. Effect of price changes: Because national income is measured in monetary terms, it may rise if the price level rises.

This indicates that an increase in the price level without an increase in national output could increase national income despite no change in national output.

Assume that a county's total production in 2009 was 100 and average prices were €5 and that in 2010, 100 commodities were still produced but average prices had climbed to €7.

This means that GDP increased from €500 in 2009 to €700 in 2010, implying that GDP increased despite no change in national output.

8. Problem of estimating depreciation: Heavy machinery used in the industrial and mining sectors depreciates over time due to wear and tear, exhaustion, and obsolescence.

However, Depreciation cannot be valued accurately. Depreciation is, in fact, frequently estimated.

Due to the estimation of depreciation, National income statistics may appear to be just an estimation.

These are the eight problems associated with national income statistics. 

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