MEASURING NATIONAL INCOME AND OUTPUT

Problems of measuring national income

Problems of double counting

Appear when both values of final goods and intermediate goods are included which some of components are bought and sold over a number of times

To avoid, GDP includes only the value of final goods. Inclusion of the value of intermediate goods will distort the value of the GDP

Problems of non monetized sector

The existence of a large number in the agricultural sector, make computation of national income more challenging due to fact large quantity do not reach the market

The output consume directly or exchanged for other good and services. This makes it difficult to measure the national income

Underground economy

Those who do not disclose their incomes or underestimate their incomes to avoid paying the higher taxes may cause a loss in government income revenues and sales.

Non-markets transactions

A number of productive work is carried out in the economy which do not involve payment

During this transactions, no money changes hands and subsequently no payment are recorded

Problems of expertise and modern machinery

The lack of professionals is a major problem in third world countries because the service from them are very important in estimating the national income.

Another challenge faced is the non-availability of modern machinery to compute national income data. Data collected has to be analyzed using sophisticated machinery

Uses of national income statistics

International comparisons

To make international comparisons of people's living standards or real income

We can compare the absolute size of one economy relative to another and how well off the average individual is in each country

Sectoral Contributions

The service sector is the key driver contributing meanwhile the primary sector is the key contributor in less developed countries

The policymakers can recognize which economic sectors are more or less likely contributing.

Government planning and policies

Government can view the historical trends and performances of the economic sectors.

Government can take necessary measures to improve the current level or take the right corrective actions

Standard of living indicators

can be measured by GDP per kapita

The more goods and services that households benefit, the higher the increase in consumption opportunities.

Can be compared based on two different perspectives which is to compare the standard of living over time and to compare the standard of living across countries