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National Income, HANIS NURARISYA BINTI ABDUL MANAP | KBA2462A | 2019219288…
National Income
Problems of Measuring National Income
1- Problems of Non-Monetized Sector
Usually arise in most of the third world countries.
Due to the fact that a large quantity of agricultural output in these countries do not reach the market.
The output are either consumed directly by farmers or exchanged for other goods and services.
2- Underground Economy
In which transactions contributing to production such as illegal trade and tax avoiding activities are not reported - causing the GDP to be underestimated.
Who do not disclose their incomes to avoid paying high tax may cause a loss in government income revenues and sales.
3- Non-Market Transactions
Number of productive work is carried out in the economy which do not involve payment.
For example: food grown in backyard plots, home repairs and etc - do-it-yourself goods and services.
During these transactions, no money changes hands and subsequently no payments are recorded.
4- Problems of Expertise Modern Machinery
Lack of professionals is a major problem in third world countries.
Their services is important in estimating the national income data accurately with minimum errors.
Important challenge faced:
:check: Advanced computers or programs to compute national income data.
5- Problems of Double Counting
Will appear when both values of final goods and intermediate goods are included.
To avoid :!:
GDP includes only the value of final goods and ignores intermediate goods altogether.
Uses of National Income Statistics
1- Standard of Living Indicators
Reflects the individuals's welfare because it shows how much goods and services can be consumed by each individual in a country.
Measured by GDP per capita.
Can be compared based on two different perspectives:
:pencil2: to compare the standard of living over time.
:pencil2: to compare the standard of living across countries.
2- Government Planning and Policies
Useful for government to formulate their economic planning.
Can guide the policymakers in planning for the future.
Government can view the historical trends and performances of the economic sectors.
Government can take necessary measures to improve the current level of economy, or take right corrective actions.
3- Sector Contributions.
Activities can be grouped according to the specific sector:
:explode: Primary sector - Agriculture, forestry, mining and quarrying
:explode: Secondary sector - Manufacturing and construction
:explode: Third sector - Electricity, accommodation and restaurant and wholesale and retail trade.
Policymakers can recognize which economic sectors are more or less likely contributing to the national income.
Primary sector is the key contributor in less developed countries.
4- International Comparisons
Make international comparisons of people's living standards.
Can compare the absolute size of economy relative to another and how well off the average individuals in each country.
HANIS NURARISYA BINTI ABDUL MANAP | KBA2462A | 2019219288