Following precautions must be taken while estimating national income by expenditure method :
1. Self-produced final products – We should include the self use of own produced final products. For example, imputed rent of self occupied house should be included in the national income.
2. Second-hand goods – Expenditure on second-hand goods should not be included in the national income because it does not represent any addition to the flow constituting national income.
3. Financial assets – We should not include expenditure on financial assets such as shares, debentures etc., because expenditure on financial assets does not generate national income.
4. Intermediate goods – We should not include expenditure on intermediate goods and services because national income includes only finished goods (final goods) ready for consumption and investment.
5. Transfer payments – We should not include government expenditure on transfer payments such as unemployment benefits, old age pensions, scholarships etc., as no productive service is rendered by the recipients in exchange.
