Complete the correlation: Theoretical difficulty : Transfer payments : : ________ : Valuation of inventories.

Answer: Practical difficulty

Difficulties in measuring national income are of two kinds:

• Theoretical difficulties are problems of deciding what should be included, for example whether transfer payments such as pensions and scholarships form part of national income. They do not, because nothing is produced in return.
• Practical difficulties are problems that come up when the actual figures are collected and valued. Valuation of inventories is one of them: stocks of raw materials, semi-finished goods and finished goods have to be valued, and their prices keep changing during the year, so an accurate value is hard to get.

So the correlation is: Theoretical difficulty : Transfer payments : : Practical difficulty : Valuation of inventories.