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Difficulty: EasyDifficulties and Problems in National Income Accounting

Which of the following activities presents a major difficulty in calculating national income because it is non-monetized?

  1. A
    Payment of salaries to civil servants
  2. Subsistence farming output consumed directly by the farm householdAnswer
  3. C
    Purchase of raw materials by manufacturing firms
  4. D
    Commercial sale of cash crops in international markets

Answer

Subsistence farming output consumed directly by the farm household
Subsistence agricultural output is consumed directly by the farmers who produce it. Because these products never enter the formal market, no prices or financial records exist for them, making it very difficult to accurately estimate their value in national income calculations.

Step-by-Step Solution

1
Identify the core problem described in national income accounting
The problem relates to non-monetized production.
Non-monetized activities do not pass through a market, so market prices are unavailable for valuation.
2
Evaluate the given options to find the non-market economic activity
Subsistence farm production is consumed internally by the producer without any price or monetary transaction occurring.
Because no money changes hands, national income statisticians must estimate or impute values, leading to measurement inaccuracies.

Key Concept

Non-monetized transactions in National Income Accounting
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Topics

Difficulties and Problems in National Income Accounting

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