The national income identity This relationship is expressed in the national income identity, where the amount received as national income is identical to the amount spent as national expenditure, which is also identical to what is produced as national output. You can also use statistics in accounting to create projections for the next fiscal year. These are government expenditures but they are not included in national income because they are paid without adding anything to the production process during the current year. But prices do not remain stable. All this process is termed depreciation or capital consumption allowance. O Disposable Income : Disposable income or personal disposable income means the actual income which can be spent on consumption by individuals and families.
Distribution of Grants-in-aid and Others. Three approaches are employed for this purpose. The study of national income is basic to study of Keynesian theory of employments as the total performance of an economy is judged by an increase in income and employment. Let's say some company sold the parts to build the car in the first example for 2,000. We find that old scooters, cars, houses, machinery, etc. But it is not possible to estimate the value of each factor input to production.
Similarly, Pigou is of the view that if a man marries his lady secretary, the national income diminishes as he has no longer to pay for her services. But the net national income earned from abroad may be positive or negative. But if he spends the amount for using it as a taxi, it is investment expenditure. Therefore at least theoretically national income must be equal to output and expenditure. First, in the present day world, so varied and numerous are the goods and services produced that it is very difficult to have a correct estimation of them.
Too liberal allowance of depreciation may prove harmful as it may unnecessarily lead to a reduction in consumption. The boundary is usually defined by geography or citizenship, and it is also defined as the total income of the nation and also restrict the goods and services that are counted. Sorry, but copying text is forbidden on this website! For example if the market price of rice is Rs. Apart from other factors, the capital formation in a country is determined by the extent of technical know-how and technology of production. Wages and Salaries paid in Kind: Another problem arises with regard to wages and salaries paid in kind to the employees in the form of free food, lodging, dress and other amenities. To avoid double-counting, the national income accounts only record the value of the final stage, which in this case is the selling price of £25,000. For the Economy: National income data are of great importance for the economy of a country.
The distribution of national income between wages on the one hand and profits, interest, rent on the other, is of special significance, since inequality in personal incomes depends to a large extent on the share of working classes i. Economic Policy: National income figures are an important tool of macroeconomic analysis and policy. Understanding how national income is created is the starting point for. Further, measuring national income is essential for various purposes that include projection about the future course of the economy, assisting government as the basis to design or redesign suitable development policies, helping firms in forecasting future demand for their products and facilitating international comparison. Distribution of Grants-in-aid: National income estimates help a fair distribution of grants-in-aid by the federal governments to the state governments and other constituent units.
Statistical data are now widely used in making all administrative decisions. But the interest received on governmental loans has to be excluded, because it is a mere transfer of national income. The quality of labour depending upon intelligence, education, training, etc. Likewise, the quantity and quality of entrepreneurial ability is also an important element to reckon with in the determination of the size of national income of a country. The expenditure on a new house is regarded as investment expenditure and not consumption expenditure. Services of Housewives: The estimation of the unpaid services of the housewife in the national income presents a serious difficulty.
Capital gains are excluded from national income because these do not arise from current economic activities. 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. National income accounts are multipurpose indicators for economists and administrators, and statistical methods are used to prepare these accounts. In the equation if quantity remains constant and only price rises, result will show a growth in money value of output though we know that output has not changed. Market cost is calculated after adding indirect taxes to the factor cost of the product. How do we measure the performance of an economy? There is a shift from the constituent parts of an economy to the economy as a whole. The national income is also important for less developed or developing countries.
Another is the sum of incomes approach. This is also known as national income at constant prices. Banks make use of statistics for a number of purposes. Till now we have considered all three methods of calculating national income. The problem arises about the inclusion of their services in national income since they do not produce tangible commodities. People receive Income by working in various capacities.
Information on data for Israel:. Research: The national income data are also made use of by the research scholars of economics. The preparation of federal and provincial government budgets mainly depends upon statistics because it helps in estimating the expected expenditures and revenue from different sources. Statistics helps in determining the existing position of per capita income, unemployment, population growth rates, housing, schooling medical facilities, etc. Second-hand Goods and Assets: Another problem arises with regard to the sale and purchase of second-hand goods and assets.
If demand increases at an unsustainable rate, resources become increasingly scarce, and firms will raise prices. The 10,000 came from the amount that the car was sold for. On the contrary, with the fall in the price level, the national income also falls, though the national production might have increased. The Planning Commission in India also kept in view the national income estimates before formulating the five-year plans. Even the taxation and borrowing policies are so framed as to avoid fluctuations in national income.