(i) Explain any two precautions to be adopted while estimating National income by Income method. (ii) "Higher Gross Domestic Product (GDP) always means higher per capita availability of goods in the economy." Defend or refute the given statement as the index of welfare of the people of that country. (i) Distinguish between factor income and transfer income with suitable examples. (ii) Explain the components of 'Profit' as per Income Method of estimating National Income (NNP_FC).

Question

Accepted Answer

(i) Precautions for Income Method:
1. Exclude transfer payments (pensions, gifts, donations)
2. Exclude windfall gains (lottery, prizes)
3. Include only factor incomes (wages, rent, interest, profit)
4. Exclude income from second-hand sales
5. Include imputed values for owner-occupied houses

(ii) Higher GDP does NOT always mean higher per capita availability of goods.

Reasons:
1. GDP growth may be faster than population growth
2. Income distribution may be unequal
3. Quality of goods may not improve
4. Environmental degradation may occur
5. Non-monetary transactions are excluded

Example: A country may have high GDP but poor income distribution, leaving many citizens with limited access to goods and services.