Explain any four major difficulties in estimation of national income?

Question: Explain any four major difficulties in estimation of national income?

Estimating national income can be quite challenging due to various factors. Here are four major difficulties:

Informal Economy: A significant portion of economic activities, especially in developing countries, takes place in the informal sector. These transactions often go unrecorded, making it difficult to accurately assess the national income. Examples include small-scale traders, street vendors, and unregistered businesses.

Data Collection Challenges: Collecting comprehensive and accurate data is a major hurdle. Surveys and censuses can be time-consuming and expensive, and there is always the risk of incomplete or inaccurate reporting. Additionally, some entities may underreport earnings to evade taxes, further complicating the estimation process.

Non-Market Activities: Many economic activities do not involve market transactions and are thus hard to quantify. For instance, household work, volunteer services, and subsistence farming contribute to the economy but are not traded in markets, making their value difficult to estimate.

Price Changes: Inflation and changes in prices can distort the real value of goods and services produced over time. Adjusting for these changes requires complex calculations to ensure that the national income reflects the true economic value, not just nominal figures.

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