Compute (a) Domestic Income and (b) Net National Disposable Income.

OR

Explain any four limitations of using GDP as a measure/index of the welfare of a country.

PFCE = 2200

GFCE = 2500

GDCF = 1190 + (-100) = 1090

Depreciation = 145

Net export (X-M) = 155 - (- 420) = 575

Net Indirect Tax (NIT) = Indirect tax - subsidies

= 470

Domestic Income (NDP at FC) = PFCE+GFCE+ GDCF - Depreciation + (X-M) - NIT

= 2200+2500+1090-145 + 575 - 470

= 5750

Net national Disposable Income = NDP at FC +NFIA+NIT+Net current transfer from abroad

= 5750+125+470 +350 = 6695

OR

National income is the money value of the final goods and services that are produced within the territories of the country during a year. GDP is the part of national income that measures the domestic income in the country. It is often assumed that higher the GDP higher is economic welfare. But this is not always the case. The country’s welfare cannot be accurately measured by GDP. The following are the main limitations of GDP:

• The estimates of GDP does not consider the vast black and unaccounted economy in many developing and developed countries. Thus the value of GDP is underestimated.

• GDP does not consider the services that do not involve any market transactions like the services of housewives.

• Many environmentalists argue that GDP does not include the decline in welfare as a result of the destruction of the environment. Thus the GDP does not depict the damage and destruction caused to the environment. A green GDP has to be calculated for this.

• GDP does not include the leisure component. It is also an important constituent of social welfare that is not reflected in GDP.

• The distributional aspect is not considered in GDP. The GDP might increase, but the distribution of income may not be equitable. This is not reflected while calculating GDP.