Question

Give reason or explain the following statements:

1) Income from second hand sale of goods is excluded from national income.
2) National income at factor cost includes subsidy.
3) National income estimates are accurate in India.
4) Old age pension is transfer income.
5) Paid services are included in national income.

Answer 1

1) Income from the second hand sale of goods is not included in the national income of that current accounting year. This is because the value of these goods was included in the national income in the accounting year in which they were produced. Thus, if the value of these goods is also included in the current year, it will lead to the problem of double counting of the value of such goods.

2) Factor costs are the actual payments made to the factors of production for rendering their service in the course of production. In case subsidy is provided for the same, its value must also be included to get the correct value of factor cost.

3) India uses a combination of the output method and the income method for the calculation of national income. Income method of calculating national income is very much accurate but the output method is not that reliable as it ignores some of the values or there are some services whose values cannot be measured in monetary terms. So, national income estimates in India are not exactly accurate but these estimations are very near to the exact value.

4) Old age pension is a transfer income as no services are provided in return for them. The government provides such services for welfare purposes.

5) Paid services are those services for which the user of those services makes payment to the service provider. Since paid services can be measured in monetary terms, and they add to the total production of the country, they are included in the national income.