Using national income accounting gives us a look at how the economy is performing and where money is being earned and spent. These refer to net national income and net national expenditure, which ultimately equal each other. These include comparing countries, making economic forecasts, to improve government or business policies and actions or to understand if an organization has been successful in reaching its macroeconomic goals. If not, economists often advise drastic changes to improve current outlooks towards the future. In some countries a small elite has a large share of the economic cake; in such countries figures showing a high average income per head may give the wrong impression of typical living standards. However if the objectives have been accomplished, the government would normally also instigate changes to increase even more economic growth and expansion.
Population: A higher national income clearly does not mean a higher standard of living if the extra income is shared among more people. This stock appreciation and sometimes even depreciation should be adjusted. It includes expenditure on house construction, factory- buildings, and all types of machinery, plants and capital equipment. This average ranges from 1. May be that is the reason why things get off track so often :-. The accounts only measure paid activities.
His social accounting matrix implemented many cross-checks on the validity of components of national income and, in so doing, derived means of measuring them. Capital Gains: The problem also arises with regard to capital gains. For instance, it can tell us whether agriculture is contributing more or the share of manufacturing is falling, or of the tertiary sector is increasing in the current year as compared to some previous years. Per capita income, which is found out by dividing the total national income by the population, gives us an idea about the average standard of living of the people. People sometimes fail to fill in forms or they complete them inaccurately. So it is better to add value added every time.
Again, it often happens that the cost of production of a commodity to the producer is higher than a price of a similar commodity in the market. Difficulties or Limitations in Measuring National Income : There are many conceptual and statistical problems involved in measuring national income by the income method, product method, and expenditure method. It is for example used as a comparison scale between countries. The national income is, therefore, underestimated by excluding the services of a housewife. It comprises expenses on durable goods like watch, bicycle, radio, etc.
But the definitions advanced by Marshall, Pigou and Fisher are not altogether flawless. These figures when accounted are not usually equal because of statistical discrepencies. Personal income is never equal to the national income, because the former includes the transfer payments whereas they are not included in national income. But expenses on defence equipment are treated as consumption expenditure because they are consumed during a war as they are destroyed or become obsolete. The imported goods are not produced within the country and hence cannot be included in national income, but the exported goods are manufactured within the country. According to this definition, in the backward and underdeveloped countries of the world, where a major portion of the produce is simply bartered, correct estimate of national income will not be possible, because it will always work out less than the real level of income.
Additionally, certain data points are not examined, such as the impact of the underground economy and illegal production. After the statistics have been analyzed the organization in question may choose to change policies or create new ones to stimulate economic growth if the objectives have not been achieved. First, in the light of the definition put forth by Pigou, we have to unnecessarily differentiate between commodities which can and which cannot be exchanged for money. The extent of inequality in a country can be measured from the national income data collected through the income distribution methods. This concept is based on the assumption that national income equals national expenditure. If over a period of years there is a rise in such activities, then this will not be shown in the official figures and comparisons over several years will be inaccurate. T hese will be returned to later when discussing the limi tations.
Therefore, when these activities are, because of greater labor force participation, shifted to the market—as restaurant meals and semiprepared foods in grocery stores, cleaning and laundry services, and day care—the change in the value of production is overstated due to the decline in nonmarket household production. Increase in wages for a sector that is generating a large percentage income for the economy. Economic essay National income is a measure of the value of the output of the good and services produced by an economy over a period of time. Because government expenditures are neither voluntarily elicited nor priced in the market, they are valued at cost, which is primarily the cost of labor. N Personal Income : Personal income is the total income received by the individuals of a country from all sources before payment of direct taxes in one year.
Public sector output for example a street light is not sold to anyone so it does not have market price. However, here is a more detailed list:. That means the people are losing money by inflation, but not earing anything. Concepts of National Income : There are a number of concepts pertaining to national income and methods of measurement relating to them. Third, the durable goods generally keep changing hands leading to a change in their ownership and value too. It went into great depth about the health and well-being of the economy.