Which of the following factors may lead to the underestimation of national income figures?

Analyze the question National income is the total value of goods and services produced in a country in a year. The question asks which factor causes the figure to be underestimated, meaning the recorded figure is lower than the true value.

Concept National income is hard to measure accurately because of these problems:

• Subsistence production: output that farmers consume themselves, or that is bartered, never passes through the market. It has no recorded price or transaction, so it is often left out or poorly estimated.
• Informal sector activity and unrecorded transactions.
• Illiteracy and poor record-keeping.
• Double counting, which causes overestimation.
• Lack of skilled statisticians, which causes inaccurate figures.

Evaluate each option

• A. Availability of skilled statisticians: This improves accuracy, so it does not cause underestimation.
• B. High volume of exports: Exports are part of national income (the X in X − M), so they are recorded and do not cause underestimation.
• C. Emigration of skilled workers: This reduces the labour force and may reduce output, but it is a real fall in production, not a measurement error. Income earned abroad by citizens is also counted separately as net property income from abroad.
• D. Subsistence production: Goods produced and consumed by households are not sold in the market, so they are often left out of the records. Real output is therefore higher than the recorded figure, which is underestimation. ✔

Answer: D

Tip: For "underestimation" questions, look for things that are unrecorded or non-market, such as subsistence farming, the informal sector, housewives' services and black-market activity. For "overestimation", think of double counting.