Whilst measuring National Income, we need to be aware of some of the following limitations, challenges, problems which are tabulated below:
- National Income measures domestic economic performance, NOT social welfare, but there should be a strong positive correlation.
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- National Income understates social welfare-non-market transactions like home-makers service and do-it-yourself projects are not counted
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- National Income does not measure:-
· An increase in leisure or work satisfaction.
· Changes in product quality
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- National Income does not accurately reflect changes in environment like oil spills cleanup is measured as positive output but increased in pollution is not measured as negative
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- Per capital income is a more meaningful measure of living standards than total national income.
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- Problem of double counting.
· However, problem of double counting could be avoided by utilizing the value added approach.
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- Problems of depreciation estimation
· Different methods of calculating or estimating depreciation
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- Arbitrary Definition
· Inclusion or exclusion of certain items in national income accounting can cause confusion
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- Challenges like difficulties in getting information especially those related to underground economy.
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