Match each national income accounting difficulty listed on the left with its corresponding economic effect or underlying cause listed on the right.
- Non-monetized subsistence productionCauses gross underestimation of national product in agrarian developing nations.
- Valuation of inventory during price inflationCreates illusory expansion of national income figures without an increase in physical volume.
- Aggregation of intermediate inputs with final outputLeads to double counting and artificial inflation of total national output.
- Omission of unpaid domestic homemaking servicesExcludes meaningful productive activities due to the absence of formal market prices.
Answer
Non-monetized subsistence production matches with causing underestimation in agrarian nations; inventory valuation during inflation matches with creating illusory expansion without physical increase; aggregation of intermediate inputs matches with double counting; and omission of unpaid domestic services matches with excluding activities lacking formal market prices.
Each difficulty in national income measurement is correctly paired with its economic consequence. Non-monetized subsistence production leads to an underestimation of output in rural developing nations; inflation creates nominal increases without real physical growth; counting intermediate goods alongside final output causes double counting; and unpaid domestic work is excluded due to the lack of monetary prices.
Step-by-Step Solution
Key Concept
Difficulties and Problems in National Income Accounting