Things That Are Included and Excluded When Calculating national income

 To Calculate national income, some things are not added to the computation of the national income. This content will look at those things and why they are not added to the computation of national income.

1. Stock appreciation is not included in national income calculation because it is not considered a direct result of economic production or economic activity. It is simply an increase in the market value of stocks that individuals own, which is not a measure of the real income generated by an economy. While stock appreciation can have an impact on the wealth of individuals, it does not create any value in terms of the production or consumption of goods and services. Therefore, it is not counted as a part of national income calculation as it is not considered to be a true measure of the economic output of a country.

2. Transfer payments: Transfer payments such as social security benefits, welfare payments, and other government benefits are excluded as they are not earned from production activities. Transfer payments are excluded from computing national income because they do not represent any actual production of goods or services in the economy. Transfer payments are simply the transfer of money from one entity to another, such as from the government to an individual or from one individual to another. Transfer payments do not result in any new goods or services being produced, so they are not included in the calculation of national income.

3. Second-hand sales: The sale of used goods is not included in the calculation of national income as they do not result in new production. Another reason is Second-hand goods are not included in the computation of national income as their sale does not represent any new production. Second-hand goods have already been produced and sold in the past, and their resale does not contribute to the current production of goods and services in the economy. National income is a measure of the value of output produced within a country's borders during a given period, and the sale of second-hand goods does not increase this value. Therefore, the sale of second-hand goods is not considered a component of national income.

4. Financial transactions: Income earned from financial transactions such as buying and selling of stocks, bonds, and other financial instruments are excluded as they do not result in any tangible output. Financial transactions do not create any new goods or services, and hence, do not contribute to economic growth. Therefore, they are not part of the calculation for national income. It leads to redundancy and double counting: Including financial transactions in national income calculations can lead to double counting. For example, when someone buys a house, the transaction represents an exchange of an existing asset; yet, the construction of the house has already been accounted for in the national income when the house was initially built. Including both transactions would overstate the real value created within the economy.

5. Illegal activities: Income earned from illegal activities is not considered for national income calculation as they are not legally earned and cannot be accounted for. 

Illegal activities such as drug trafficking, theft, and fraud are not included in the national income calculation because these activities violate the law and are not legitimate economic activities. Including illegal activities could distort the actual performance of a country's economy, and it may give a false impression of economic prosperity. It is not appropriate to recognize income generated from criminal activity because it would encourage illegal activities, and it is against the legal and moral principles of a country. Therefore, they are not taken into account while calculating the national income of a country.

6. Household work: The value of household production is excluded as it is not part of the formal economy. Household work is not included in the national income calculation because it is not considered an economic activity that is performed in exchange for payment. It is work that is done within the household and is primarily for self-consumption. There are no market transactions involved in the process, and thus it cannot be valued in monetary terms. Household work includes a wide range of activities such as cooking, cleaning, childcare, and maintenance, which are essential for family well-being, but these activities do not generate any income that can be measured. The national income calculation only considers economic activities that are performed for monetary compensation and contribute to the production of goods and services in the economy. Therefore, household work is excluded from national income measurement.

7. Intermediate goods and services: The value of intermediate goods and services used to produce final goods and services is not included in the calculation of national income as it would result in double-counting of production. 

8. Non-market production: The production of goods and services that are not exchanged in the market such as self-produced food, housing, and services is excluded from the national income calculation.

9. Unproductive income is not included in national income calculations as it does not contribute to the production of goods and services in the economy. National income is a measure of the total income earned by all individuals and firms in a country in a given year from the production of goods and services. Unproductive income, on the other hand, refers to income earned from activities that do not contribute to the production of goods and services, such as professional gambling, illegal activities, or some forms of welfare payments. 

National income calculations are based on the concept of value-added, which measures the contribution to production made by each stage of the production process. Only income generated by productive activities, which contribute to the production of goods and services, are included in national income calculations. Therefore, unproductive income, which does not contribute to the production of goods and services, is not included in national income calculations.

10. Statistical discrepancy is included in national income calculation as it is necessary to ensure that the various measures of national income tally with each other. The statistical discrepancy appears when there is a gap between the estimates of national expenditure and national income. It represents the difference between the two measures that cannot be explained by other sources. To make national accounts consistent, the statistical discrepancy is included in the calculation of national income as an adjustment item. The statistical discrepancy is usually small in comparison to the overall national income, but it is an important component in ensuring that the national accounts are accurate and reliable.

 HOWEVER, Not all the things which are excluded from national income calculations need you to subtract when calculating to avoid double counting.

Things that you need to exclude from national income calculations by subtracting from the computation to avoid double counting are listed below.

1. Intermediate goods and services

2. Financial transactions

3. Second-hand sales

4. Stock Appreciation