Economics

Advantages of Measuring National Income

Benefits of Calculating National Income

National income is the total value of goods and services produced in a country during a year. Several economists like Marshall, Pigou, Fisher, Simon Kuznets offered valuable definitions on national income. National income of a country is calculated by following any one of the three methods. Production method, income method and expenditure method. National income estimates play a significant role in the analysis of modern economic theory. The various advantages of national income estimates are explained below:

1. Standard of living: Standard of living denotes the nature of life and comforts of individuals. It is obtained by dividing the total population with the national income. National Incomes estimates reveal the changes in the standard of living of the people.

2. Trends of the economy : National income estimates are also useful for knowing the trends of the economy. They reveal whether the economy is moving forward or declining or in a stable condition. They also enlighten the rate of growth of the economy.

3. Output in different sectors: National income estimates are of great utility for knowing the level of output produced in different sectors like agriculture, industry, transport, business etc. They also inform the significance and contribution of different sectors to the national dividend. The various changes that took place in different sectors are also known by the national income estimates.

4. Distribution of income: National income estimates provide valuable information regarding the distribution of income among different individuals and institution in a country. They point out the proportion of national income received by different sections of society. They also acquaint us about the proportions of rent wages, interest and profits in the national income. Lastly these estimates reveal. the inequalities in the distribution of income and wealth.

5. Necessary for devising proper economic policies : National income estimates inform the various changes that took place in the economy. They help the government in understanding the causes and consequences of such changes. Government frames proper economic policies with the help of these estimates. Hence these estimates are considered as the main basis for devising economic policies by the government.

6. Economic planning: The present age is the era of planning. Almost all countries have been devising and implementing various plans for the economic progress of their economies. National income estimates provide valuable information and guidance for formulating the economic plans. The governments adopt and execute various plans on the basis of national income estimates. They determine the aims, purposes of plans and fix targets of progress in each sector with the help of these estimates.

7. Levels of income, savings, investment can be known : National income estimate present correct data and information regarding the levels of savings, investment, income and consumption. Such information is highly useful for devising planning programmes.

8. Changes in price level : National income estimates also reveal the facts regarding the changes in price level. It explains the causes and consequences of inflation and deflation and their effects on people.

9. Purchasing power : The purchasing power oi the people is also known with the help of the national income figures.

10. Future changes in different sectors: National income figures indicate the changes that will take place in different sectors in future. Such information is a boon to government and private enterprises. Both the government and private enterprises mold their economic policies on the basis of the speculations made by national income estimates.

11. Nature of economy: National income estimates denote the nature and trends of the economy. They indicate whither the economy is marching along the path of progress.

12. International economic obligations : National income estimates are also useful for determining the contribution of the share of each country in the total expenses of United National Organization (U.N.O.) countries which have high level of national income can contribute more funds for the maintenance of the International organization.

Thus national income estimates are highly useful for the individuals as well as the government. No government can formulate its economic policies in the absence of national income estimates. At one time national income estimates are carried on by a few statisticians and philanthropic organizations. But at present governments themselves have been carrying this task of preparation and publication of National income estimates. There is no exaggeration in the saying that “an economy without having national income estimates is just like a ship without a sail“.

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