The national income is the gross domestic income and expenditure of a country in one fiscal year. This is calculated by various methods like Gross Domestic Product and Gross National Product. The calculation of national income is beneficial as it helps in documenting the accounts of the country.
This is similar to a family calculating their average income and expenditure. The national income of any country is required also to apply governmental policies best suited to the people and economy of the country. There are advantages to calculating national income, as stated above, but there are also various complicated limitations.
PROS OF CALCULATING NATIONAL INCOME:
- Standard of Living:
The main reason for the calculation of the national income is to understand the standard of living that spreads over the country over a course of the year. This naturally provides a better solution to providing better economic policies on part of the government. It shows what the country needs through documentation.
- Trends in Economy:
The calculation of national income also provides an understanding of the economy of the country. The expenditure, the income of the entire country is taken as the fiscal deficit and calculating the fiscal deficit ensures that the policies of the economy can be designed according to needs.
- Calculation of Output:
The calculation of output falls under the calculation of national income. The various sectors of the country, public and private partnerships as well are part of the national output. Measuring the output of the country gives the government insight into the sectors that are functioning best.
- Calculation of Income Distribution:
The distribution of the national income is something that can be also calculated when the national income is calculated. It provides the demography of the poorest and the richest regions of the country which may allow the government to ensure that the poorest regions are improved.
- Outlook of Economic Policies:
The calculation of national income ensures the government can have a better outlook about the economic policies of the country during the review of previous economic policies. They can see what worked and what failed. They also have the advantage of eradicating previous errors and failures.
- Economic Orientation:
Through the calculation of the national income, the government gives an idea of the orientation of the economic policies that it will follow. If the national income suggests that the public-private partnerships are successful, then the government will naturally increase investment and expenditure in these various sectors.
- Index of Fiscal Deficit:
The fiscal deficit of the country is measured through the income and expenditure of the country. It is calculated by subtracting one by the other. If the fiscal deficit is in the plus it proves the country has made profits, if negative it proves the government must do better.
- Price Level Measurement:
The index of the national income also shows whether the prices of commodities in a country are going up or going down. The calculation will show how much the country is successful in keeping a balance between inflation and deflation, avoiding hyper-inflation and recession through policies.
- Consumption Power:
The calculation of the national income provides an explanation of how much the average citizen is being able to spend for the sustenance of livelihood. The national income provides data that shows the average consumption rates of the poorest and the richest sections of the entire country.
CONS OF CALCULATING NATIONAL INCOME:
- Regional Economy:
The problem of calculating the national income on a centralized basis is that it avoids the numbers of each individual regions of the country. The country is seen as a whole and the distribution and inequality in the income of various regions is left out of the calculation.
- Problems with Outlook:
The calculation of national income naturally provides an outlook of the state of the country, but what it does not do is provide a comprehensive analysis of the intricacies of the national income. It misses if the income distribution equal is it reserved in certain sections of society.
- Accuracy:
The national income of the country is not an accurate measure of the standard of living of the country as it overlooks the lowest sections of society. The national income is not an accurate measure of the economy also because it takes the numbers of the economy, neglecting sources.
- Limited Conclusions:
The national income and the calculation of the national income are gross representations of the country’s economy, where it is natural to see a big picture of the economy, but at the same time, because it is limited to a certain map, it provides lesser conclusions of thought.
- Improvement of Life:
The growth in GDP does not necessarily mean a growth in the standard of living of the people the country. The improvement of life must be calculated in other methods like surveys and calculation of milk intake, fruit intake, etc. The national income is not a measure of nutrition.
- Non-reported Income:
The several sections of the country which avoids paying income taxes, does not list the true representation of property and other assets, means that the national income does not calculate the non-reported income of the country, which is often in the bracket of millions and causes considerable damage.
- Corruption:
Apart from regional differences, the national income does not have the slightest hint of corruption. It does not take into account the calculation of bribes, of theft from government funds, and various other sectors like offshore bank accounts, building material theft and coal theft. It is oblivious to these factors.
The national income of a country is by all means a fair representation of the country’s income and expenditure, but it does not necessarily calculate the output and input of the several people of the economy.
It does not show who is taking more and who is starving, since it cannot measure in this method. The calculation of national income is a good demarcation of the economy, but not the most accurate representation.
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