National Income

It is the amount of income received by the public or the owners of the factors of production in a country during certain period of time (usually used measure of time 1 year). All revenues in return for supply of production factors of all the factors is called the national income.

BENEFITS OF STUDYING NATIONAL INCOME

Although not precise in calculations, but the national income accounts can be used as a benchmark to demonstrate the success of countrys economy. The benefits are as follows: To determine the structure of a economy of a country , whether agricultural , industrial or so on. To determine the economic progress of a country or economic development of the country from year to year , setbacks or fixed.

 To determine the level of prosperity of society in comparison with the population ie., about per capita income. To compare between countries in the world economy. As a guideline for governments to take policy relating to national economic development planning. To determine the use of public revenues. As a guideline for development activity.

LIMITATIONS OF NATIONAL INCOME

Higher GDP is not higher standardactivities such as Income generated through illegal of living. gambling is not included. Monetary values of all activities is difficult to calculate. Does not consider pollution , environmental impacts. Contribution of voluntary work is not included. Nations with same GNP may have different standard of living. Individuals do not keep correct account of their consumption.

 The service of housewives is not included in the national income because this services is not sold in the market. Lack of proper criteria in measuring services. Illiteracy and ignorance. Non availability of reliable sources. If defence spending is more then it accounts for greater national income. Technical improvements are not shown in NI. Durable good of greater than one year is not counted in NI. Distribution of income is not shown.

 Knowledge of Income Distribution:-The calculation of N.I shows the income distribution in a county. Because the N.I is the aggregate of the wages, salaries, interest, and profit so from the calculation of N.I we know that whether there is more portion of wages or profits.Does there is equal distribution of wealth or not. How much the portion of income is spent on expenses and how much spent in InvestmentHelpful In Economic Planning:-Every country makes planning for economic progress. For this purpose countries make development plans which are normally of five years. Planning is not possible with out statistical data of economy.With out calculation the N.I, it cannot be possible to get statistical data of economy.

International Importance:-Static of N.I also have an international Importance. Like governments International development organizations or banks notice the economic position of the country at the time of advancing loans.This notification is possible only due to the calculation of national Income.If international organizations donate to any country, the portion of donation is based on N.I of the country.

Various utilities of the national income estimates can be described as below: 1 National income estimates help us to know this performance of an economy during one year and over a period of years. 2 National income estimates also tell us about the economic welfare enjoyed by the people. We can know the per capital income by dividing national income by population. 3 on the basis of national income estimate comparison between various economics of the world may be made. National income figures for various countries provides us the rates of growth in different economies.4 In an economy, inter-sector comparison can be made with the help of national income statistics 5 national income figures are inevitable for an economy, which wants to develop with the help of economic planning. 6 National income accounts reflect the structural change in a growing economy. 7 National income estimated over period of years enable us evaluate the planning. 8National income estimated are also important in the formation of the budget by the finance Minister of the country.

9 National income estimates are also important because they indicate how the income or wealth is distributed among the various classes. Thus we can know whether the national income is equally distributed or not

Countries all over the world will like to know how well they are fearing in terms of growth. It is therefore prudent to calculate their national income so as to plan well their economy. Knowing how any economy perform enable the administation of that country to apportions each sector with fair and equitable resources out of the national income