NATIONAL INCOME
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Basic concepts:
Micro Economics: It explains the behavior of an individual unit of an economy. E.g. a consumer, a firm, an industry, a market.
Macro Economics: deals with the economy as a whole with respect to output, income ,the general price level, foreign trade, unemployment, and other economic aggregates.
A Production Unit: means the owners of factors of production joining hands by forming a unit with the objective of producing a good or a service.
Factor Owners: It respects to the individual owners of four factors of production- land, labour, capital and entrepreneurship.
Factor income: refers to the income created in production units as a joint effort of factor owners.
Leakages: In the process circular flow of income, firms and households save a part of their income, this is called Leakages.
Injection: when firms borrow for investment in plant and equipment etc. it increases production capacity and is called injections.
DEFINITION:-
It is a science of measuring the aggregate output and income of an economy OR National income is that part of the objective income of the community including of course, income derived from abroad which can be measured in terms of money.
IMPORTANCE OF NATIONAL INCOME
1- Help to check the level of production on time to time.
2- Explain the immediate causes of level of production.
3- Share the long run course which the economy which the economy is following
4- Provides basis of formulating and application of public policies to improve the performance of economy.
CIRCULAR OF NATIONAL INCOME
-From produce goods and services sale to house holds.
- House hold produce resources and raw material and sale to firm.
- Firm made payment to house hold against their service.
-House hold made payment to firms against their goods.
PROBLEMS OF COMPUTATION NATIONAL INCOME
1- Lack of statistical required information.
2- Double counting problem.
3- Unpaid services (Housewife, sewing, house painting by others etc..)
4- Foreign Firm income.
5- Untrained people of work of data collection.
6- Illiteracy of masses
7- Second hand sale
IMPORTANCE OF CALCULATING OF NATAIONAL INCOME
Calculation of national income is very important because of the following reasons:
1- It makes easy to judge the performance of economy during a given period of time.
2- It helps in assessing the economic freedom and welfare enjoyed by the people.
3- It helps in making inter- spectral comparison
4- It is very important for any economies, which wish to develop as national income acts as yardstick and helps in developing economic plans.
5- It shows how income is distributed among various categories of people.
National Income Accounts: It is the systematic statistical record of the money value of goods and services produced by various producing sectors of an economy. It also shows distribution of national income among the various factors of production as well as final consumption expenditure incurred. The estimation of national income accounts is based on double entry system of accounting.
Functions of national income Account~ :- It has the following two main functions.
1. It shows the special economic achievements of the country.
2. Provides basis for the critical evaluation and appraisal of the economic policies.
Uses of national income accounting :-
1. It shows the distribution of national income among various factors of production.
2. Provides information about the contribution of various sectors to national income.
3. It provides information about the changes in the structure of an economy.
4. It helps in the appraisal of strength and weaknesses of an economy.
5. It provides information about the changes taking place in standard of living, distribution of income and structural changes in national income.
6. It enables to compare the national income of one country with other countries of the world.
Circular flow of National Income: It is a pictorial illustration of interdependency between the major sectors of the economy.
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