There are three main approaches to measuring National Income these are; 1. There are two main reasons for this. National Income is important in macroeconomic measurement because: · It measures the level of economic production · It explain immediate causes of that level of production · It compares economic condition over tim · It provides a basis for formulation and application of appropriate public policies in order to improve economic performance. If they help in the smooth functioning of the production process by maintaining peace and security, then they are like intermediate goods that do not enter into national income. I spent only few minutes on this site and I got every things as I wanted. Every economy needs some form of planning for protecting itself against economic fluctuations and for exploiting its economic potential to the full. Such second-hand transactions are called transfers.
Out of this value added, the major portion goes in the form wages and salaries, rent, interest and profits, a small portion goes to the government as indirect taxes and the remaining amount is meant for depreciation. The Importance of estimating the National Income of a country and the difficulties economist encounter while carrying such estimation especially in the developing countries. Again, if indirect taxes Rs. But as they satisfy human wants and receive payments for their services, their services are included as final goods in estimating national income. If it were included in national income, it would make the value of the car £35,000 - the initial £25,000 plus the second hand value of £15,000. The value of changes in inventories may be positive or negative which is added or subtracted from the current production of the firm.
The total output of the economy is the sum of the outputs of every industry. Govt takes to deficit or surplus budget to arrest depression or inflation in an economy. They may be final goods for one industry and intermediate for others. These sectors generate factor incomes. Accounting was created in response to the development of trade and commerce during the medieval times.
However, since an output of one industry may be used by another industry and become part of the output of that second industry, to avoid counting the item twice we use not the value output by each industry, but the value-added; that is, the difference between the value of what it puts out and what it takes in. It is the cost of production. For instance, in order to find out the per capita income for 2001, at current prices, the national income of a country is divided by the population of the country in that year. Concept of National Income:- 1. Together with labor-force data, national income accounting can also be used to assess the growth and level of economic productivity.
In order to protect such producers, the government helps them by granting monetary help in the form of a subsidy equal to the difference between the market price and the cost of production of the commodity. This amount must equal the value of everything produced. Economic Models: The economists propound short-run as well as long-run economic models or long-run investment models in which the national income data are very widely used. This is clearly not the case, so any future second-hand sales are not included when valuing national income. Personal income differs from private income in that it is less than the latter because it excludes undistributed corporate profits.
Similarly, wages are likely to rise as the labour market clears and unemployment falls. One of its many branches, macroeconomics, is the study of national economics and the determination of national income. Firms calculate the depreciation value on the original cost of machines for their expected life. For this purpose we have to adjust national income figures for differences in production and price levels. And to this, must be added income from abroad.
There is a shift from the constituent parts of an economy to the economy as a whole. The procedure is to take changes in physical units of inventories for the year valued at average current prices paid for them. . The production account deals with the business sector of the economy and comprises all firms of production, such as trading and manufacturing. In India one year means from 1st April to 31st March of the next year.
The value that the measures of national income and output assign to a good or service is its market value — the price it fetches when bought or sold. Third, it is again not possible to have a correct estimation of national income because many of the commodities produced are not marketed and the producer either keeps the produce for self-consumption or exchanges it for other commodities. This problem can have different causes, for example: some houses do not have outdoor playing spaces. Price Changes: National income by product method is measured by the value of final goods and services at current market prices. To find the real value of changes in output under inflationary conditions, the effects of any general price increase price inflation must be taken into account. It indicates that the economy has been growing at a faster rate in recent years than in the past. Economic Growth: A sustained increase in real national income of a country.
As Nobel laureate Paul A. Accounting is the backbone of the business financial world. It includes expenditure on house construction, factory- buildings, and all types of machinery, plants and capital equipment. If an overcoat costs Rs. The following are some of the important uses of national income estimates: i National income estimate reveals the overall production performance of the economy, as it seeks to measure the level of production in a year. Thus this method establishes the importance of intermediate products in the national economy. In short, national income is the value of all the final output of goods and services produced in one year.