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What is a countries national income? What can it be used for? How is it measured?

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Introduction

a) What is a countries national income? What can it be used for? How is it measured? National income is a shorthand for everything that is produced, earned or spent in a country. Macro Economics is concerned with the economy as a whole. A key macroeconomic variable is the level of total output in an economy. National Income is the value of income paid by firms to households in return for land, labor, and capital. National income can be shown in a diagram of the circular flow of income in a simple economy. Households spend their money on goods and services supplied by firms. Households supply factors of production to firms in return for rent, wages, interest and profit. National Income is a measure of the output, expenditure and income of an economy. National income statistics provide not only figures for these totals but also a breakdown of the totals. ...read more.

Middle

The key measure of national income is GDP. GDP mean the gross domestic product, the total output at any market price, it also divided into five factors-consumption (C), investment (I), government spending (G), export (X), and import (M). It calculated by C+I+G+X-M. Countries use GDP to calculate the national income and then measured the economic growth. GDP is the fastest way to calculate, it estimated easily than other methods. However, GDP and national income only measured the actual growth not potential growth, although GDP was the best way of measured national income. There are also other factors such as Gross value added (GVA), Gross national income (GNP) and Net national income at market prices. Therefore, there are some factors leads to the inaccuracy national income, which use it to measure the economic growth. b) Between 1948 to 1998, the UK's GDP rose by nearly 7,000%. ...read more.

Conclusion

Moreover, the change in real income (values adjusted for inflation) over time will also be affected by the inflation rate. The inevitable errors made in the calculation of the inflation rate compound over time. * Changes in population:- National income statistics are often used to compare living standards over time. If they are to be used in this way, it is essential to compare national per capita (i.e per person). * Quality of goods and services:- The quality of goods may improve over time due to advance in technology but they may also fall in price. For instance, cars today are far cheaper. National income would show this fall in price by a fall in national income, wrongly implying that living standards had fallen. On the other hand, pay in the public sector tends to increase at about 2% per annum faster than the increase in inflation. This is because pay across the economy ...read more.

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