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Measuring National Income and Output - Coggle Diagram
Measuring National Income and Output
Uses of National Income Statistic
Standard of living indicators
Standard of living reflects the individuals` welfare because it show how much goods and services can be consumed by each individual in a country
It can be measured by GDP per capita.
The rationable is the more goods and services that households benefit from the higher the increase consumption oppoturnities, which in turns increase standard of living
Two different perspective:
To compare the standard of living over time
To compare the standard of living across countries.
Government Planning and Policies
National income statistic is very useful tool for the government to formulate their economic planning.
The available statistics of NI can guide the policy makers in planning for the future.
From the NI, the government can view the historical trends and performance of the economic sectors.
The NI data, can make the government take a necessary measure to improve current level of the economy or take the right corrective actions
Sectoral Contributions
An economy is made up of various economic activities
These activities can be grouped according to specific sectors such as primary, secondary and teritary sectors
The availability of NI statistics, the policymakers can recognize which economic sectors are more or less likely contributing to the NI.
A time series analysis can show the revolutionary changes of each sectors with time in general.
International Comparisions.
One of the purpose of measuring NI is to make international comparisons of people living standards or real income.
The NI statistics can make we compare the absolute size of one economy relative to another and how well off the average individual is in each country.
Problems Of Measuring National Income.
Problems of non-monetized sector
It usually arise in most of the third world countries
The existence of large number of non-monetized activities in these countries especially in agricultural sector, makes computation of NI more challenging.
Due to the fact that a large quantity of agricultural output of these countries do not reach the market.
The output are either consumed directly by farmers or exchanged by other goods and services.
Underground Economy
Official GDP estimates may not take into account the underground economy, in which trancsactions contributing to production such as illegal trade and tax avoiding activities are not reported
Thus, causing the GDP to be underestimated.
Those who not disclose their incomes or underestimates their income to avoid paying higher taxes may cause loss to government income revenues and sales which are not reflected in the GDP.
Non-market transactions.
A number of productive work is carried out in the economy which did not involve payment.
During these transactions, no money changes hands and subsequently no payments are recorded.
Problems of expertise and modern machinery.
The lack of professionals is a major third world countries problem.
The services of these professionals are very important in estimating the national income data accurately wiyh minimum errors
Non-availability of modern machinery such as advanced computers is the challenges to compute NI data.
Data collected on NI, regardless of the method used, has to be analyzed using sophisticated machinery
Problem of double counting
Double counting in the NI will appear when both values of final goods and intermediate goods are included.
As product goes through series of production stages before they reach the market, some of their components are bought and sold over times.
Inclusion of the value of intermediate goods will amount multiple counting which will distort the value of the GDP.
To avoid this problems, the GDP includes only the final goods and ignore intermediate goods altogether.