Usefulness and significance of national income estimates class 12.

Usefulness and significance of national income estimates

National Income is defined as the net value of all economic goods and services produced within the domestic territory of a country in an accounting year plus the net factor income from abroad. According to the Central Statistical Organization (CSO) ‘National income is the sum total of factor incomes generated by the normal residents of a country in the form of wages, rent, interest and profit in an accounting year.’

National income accounts are fundamental aggregate statistics in macroeconomic analysis and are extremely useful, especially for emerging and transition economies.

• National income accounts provide a comprehensive, conceptual, and accounting framework for analyzing and evaluating the short-run performance of an economy. The level of national income indicates the level of economic activity and economic development as well as aggregate demand for goods and services of a country.

• The distribution pattern of national income determines the pattern of demand for goods and services and enables businesses to forecast the future demand for their products.

• Economic welfare depends to a considerable extent on the magnitude and distribution of national income, the size of per capita income and the growth of these over time.

• The estimates of national income show the composition and structure of national income in terms of different sectors of the economy, the periodical variations in them and the broad sectoral shifts in an economy over time. It is also possible to make temporal and spatial comparisons of the trend and speed of economic progress and development. Using this information, the government can fix various sector-specific development targets for different sectors of the economy and formulate suitable development plans and policies to increase growth rates.

• National income statistics also provide a quantitative basis for macroeconomic modelling and analysis, for assessing and choosing economic policies and for objective statement as well as evaluation of governments’ economic policies. These figures often influence popular and political judgments about the relative success of economic programs.

• National income estimates throw light on income distribution and the possible inequality in the distribution among different categories of income earners. It is also possible to make comparisons of structural statistics, such as ratios of investment, taxes, or government expenditures to GDP.

• International comparisons in respect of incomes and living standards assist in determining eligibility for loans, and/or other funds or conditions under which such loans, and/ or funds are made available. The national income data is also useful to determine the share of nation’s contributions to various international bodies.

• Combined with financial and monetary data, national income data provides a guide to make policies for growth and inflation.

• National income or a relevant component of it is an indispensable variable considered in economic forecasting and to make projections about the future development trends of the economy.