What are the uses of National Income figures?
Before understanding the uses of National Income figures it is of the utmost importance to define National Income and the three methods used to calculate it. National Income is the aggregate money value of goods and services produced by the factors of production over a given period of time in a country. It is the annual report and as a result it is referred as the real income, that is, income measured in terms of goods and services. When there is income generated it is the result of output being produced and the output will be purchased from the expenditures of both private and public sectors. In other words the total value of output as well as the total value of expenditure such that National Income will be equivalent to national output which will be equivalent to national expenditure. Therefore if we want to calculate the National Income of a country, we can use three distinct methods. The Income Method:
This method of measuring National Income takes into account all the incomes generated when producing the national output. When we add up all the incomes like wages, rate, interest, profits, profits, surplus of government enterprises we get National Income of a country. Transfer payments are not included in the calculation of National Income because those are incomes which are earned without any production. The Output Method:
The output method is also known as the value added method. With this method we add up all the net outputs of the different production units in the country. With this method we must not include the intermediaries because this would lead to double counting. The Expenditure Method:
Expenditure method of measuring national income measures the national income of a country by adding all the expenditures made by the people of the country and it also includes the expenditures made by the government of the country. Expenditure method of national income measures only the value of final purchase made by the consumer; it does not include the expenditure on intermediate goods which are used for making final goods. Therefore one needs to make adjustment for taxes, subsidies, exports and imports made by the country during particular year.
Having already explained what is National Income and the methods used to calculate it we can now explain the uses of National Income Figures.
Importance of National Income Figures:
The computation of national income is one of the very important statistics for a country. It has several important uses and therefore there is a great need for there regular preparation. The following are some of the important uses of national income statistics: Level of Economic Welfare:
The national income estimate reveals the overall performance of the country during a given financial year. With the help of this statistics the per capita income i.e. the income earned by every individual is calculated. It is obtained by dividing the total national income by the total population. With this we come to the level of economic welfare in terms of its standard of living. Rate of Economic Growth:
With the help of national income statistics we can know whether the economy is growing or declining. In simple words it helps us to know the conditions of a country economy. If the national income is growing over a period of year it means that the economy is growing and if the national income has reduced as compared to the previous it reveals that the economy is detraining. Similarly the growing per capita income shows an increasing standard of living of the people which is a positive sign of a nation’s growth and vice versa. Distribution of Wealth:
One of the most important objectives that are achieved after calculating national income is to check its distribution among different categories of income such as wages, profits, rents and interest. It helps to understand that how well the income is distributed among the various factors of the economy and their...
Please join StudyMode to read the full document