Discover the importance and uses of National Income statistics in economic policy formulation, GDP calculation, comparative analysis, investment decisions, and social welfare programs.
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 components that throw light on the functioning and performance of the economy.
“Understanding the Uses of National Income Statistics for Economic Analysis”
The following are some of the important uses of national income estimates:
First, national income estimates 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 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.
Secondly, 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 unchanges, 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 known the changes in the standards of living and economic welfare of the people.
Thirdly, 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.
Fourthly, 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 the working classes (i c- wages) and the share of property owners (i.e., rents, orofits and interests).
Fifthly, 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 growth. Further; consumption plus
investment constitutes the level of aggregate demand on which depends the level of income or employment in a country.
Sixthly, with the help of national income estimates of various countries of the world, we can compare the standards of living and the levels of economic welfare of the people living in those countries. Moreover, developed and under – developed countries are usually classified on the basis of per capital income.
Finally, 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 sectors need any stimulus or regulation. From the national income estimates we can see the part played by the government in the national economy.
In fact, no development planning is possible without national income estimates. National income estimates prove very useful for formulating plans and fixing targets of production. Preparation of plans depends very much on the availability of data regarding national income, consumption, saving and investment which are all provided by national income estimates. Further, we can assess and evaluate the achievements or otherwise of the development targets laid down in the plans from the changes in national income and its various components.
Conclusion:
We may conclude in Samuelson’s words thus; ‘By means of statistics of national income, can chart the movements of a country from depression to prosperity, its steady long — term rate of economic growth and development, and finally, its material standard of living in comparison with other nations.