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MEASURING NATIONAL INCOME - Coggle Diagram
MEASURING NATIONAL INCOME
USES OF NATIONAL INCOME
Standard of living indicators
reflect the individual welfare as it shows how goods & services can be consumed by each individual in the country
GDP by capita
2 type of standard - to compare the standard of living over time - to compare the standard of living across countries
Government planning and policies
to formulate the economic planning
available data helps the policymakers in planning for the future
from NI data, government can view the historical trends and performance of economic sector.
the government can take necessary measures to improve the current level of economy or take the right corrective measure.
Sectoral contributions
primary sector
agriculture, forestry, mining
tertiary sector
electricity, gas & water, wholesale & retail trade
secondary sector
manufacturing and constrution
given the NI data, the policymaker can recognize which economic sectors are more or less likely contributing to the national income.
International comparisons
to make international comparisons of people's living standard or real income
compare the absolute size of one economy relative to another and how well off the average individual is in each country
ISSUES IN MEASURING NATIONAL INCOME
Problems of non-monetized sector
arises in most third world countries
make computation of NI more challenging
large quantity of agriculture output do not reach the market
consumed directly by farmers / exchanged for other goods & services
Underground economy
the official GDP may not take into account the underground market ( illegal trade & tax-avoiding activities)
those that do not disclose their incomes to avoid paying higher taxes may cause loss in government income revenue & sales
Problems of expertise and modern machinery
the services of these professional are important to estimating the NI data
non-availability of modern machinery to compute the NI data
Non-market transactions
a number of productive work is carried out in economy which do not involve payment
no money changes hands so no payment are recorded
Problems of double counting
will appear when both values of final goods and intermediate goods are included
to avoid the double counting, the GDP includes only the value of final goods and ignores intermediate goods together