Limitations/Challenges/Problems In The Measurement Of National Incomes:

Whilst measuring National Income, we need to be aware of some of the following limitations, challenges, problems which are tabulated below:

  1. National Income measures domestic economic performance, NOT social welfare, but there should be a strong positive correlation.
  1. National Income understates social welfare-non-market transactions like home-makers service and do-it-yourself projects are not counted
  1. National Income does not measure:-

·   An increase in leisure or work satisfaction.

·   Changes in product quality

  1. 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
  1. Per capital income is a more meaningful measure of living standards than total national income.
  1. Problem of double counting.

·   However, problem of double counting could be avoided by utilizing the value added approach.

  1. Problems of depreciation estimation

·   Different methods of calculating or estimating depreciation

  1. Arbitrary Definition

·   Inclusion or exclusion of certain items in national income accounting can cause confusion

  1. Challenges like difficulties in getting information especially those related to underground economy.


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