Importance of National Income Statistics Essay

There are several important uses of national income statistics and, therefore, there is great need for their regular preparation. National income estimates provide not only a single figure showing the national income, but also supply the detailed figures in regard to the various components of the national income. It is both the figure of national income and the details regarding its various constituents that throw light on the functioning and performance of the economy. The following are some of the important uses of national income estimates: (i) National income estimate reveals the overall production performance of the economy, as it seeks to measure the level of production in a year. Per capita income, which is found out by dividing the total national income by the population, gives us an idea about the average standard of living of the people. Economic welfare depends to a considerable degree on the level of national income and the average standard of living of the people. Thus, the figures of national income and per capita income indicate the level of economic welfare of the people of a country. (ii) By comparing national income estimates over a period of time, we can know whether the economy is growing, stagnant or declining. If the national income increases over years, it means that the economy is growing. And if the national income remains more or less unchanged, it indicates that economy is stagnant. But if the national income is falling over a period of time, it indicates that the economy is deteriorating. In case the economy is growing, we can also judge the rate of economic growth or development by measuring the rate of increase in national income. Further, by comparing the per capita income over years, we can know the changes in the standards of living and economic welfare of the people. (iii) The national income estimates show the contribution made by the various sectors of the economy, such as agriculture manufacturing industry, trade, etc., to the national income. Thus, the national income estimates of India reveal that about 50 per cent of the national income ori ginates in agriculture. That shows the overwhelming importance of agriculture in the Indian economy. (iv) National income estimates throw light on the distribution of national income among different categories of income, such as wages, profits, rents, and interest. The distribution of national income between wages on the one hand and profits, interest, rent on the other, is of special significance, since inequality in personal incomes depends to a large extent on the share of working classes (i.e., wages) and the share of property owners (i.e., rents, profits and interest). (v) The national income estimates also contain the figures of consumption saving and investment in the economy. Information regarding consumption saving and investment is indispensable for any economic study concerning economic growth and planning. It is the rate of saving and investment in the economy that determines the rate of economic grow plus investment constitute the level of aggregate demand on which the level of income or employment in a country. (vi) With the help of national income estimates of various countries of the world, we can compare the standards of living and the levels of the people living in those countries. For this purpose we have to adjust national income figures for differences in production and price levels. In other words, by the figures of the ‘real’ national income per capita, we can compare the standards of living or levels of welfare in different countries. Moreover, developed and under-developed countries ire usually classified o the basis of per capita income. (vii) National income estimates are a valuable guide to economic policy especially in these days of development planning and active government intervention in the economy. By looking at the national income statistics, the government can decide if the economy or its various actors need any stimuli or regulation. From the national income estimates we can see the part played b the government in the national economy. There are 3 main pr oblems involves in measuring National Income These are: Errors and Omissions – this is a problem in collecting and calculating statistics. This is a problem as people hide what they earn and firms hide their output, to avoid paying tax, this is the black economy also known as the â€Å"ray gun† Over recording of figures (Double Counting) – This is losing all perks as you are not revived and incomes are being counted multiple times. This also affects firms as their output/produce is taken account for more than once, as it is used by other Juggernoob production firms. Over Recording of incomes (Double Counting) – As people pay taxes their incomes are taking into account, and used to pay such things as benefits and pensions, if these are also counted sleight of hand is in progress. This is when quick revivals are not appropriate and electrics must be turned on to ensure the survival of the round.