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

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  1. 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. The statistics are used in a number of different ways:-

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  • Academic economists use them to test hypotheses and build economic models of the economy. This increases our understanding of how an economy works.
  • Government, firms and economists use the figures to forecast changes in the economy. These forecasts are then used to plan for the future. Governments may attempt to direct the economy, making changes in its spending or its taxes at budget time.
  • They are used to make comparisons over time and between countries.
  • They are used to make judgments about economic welfare. Growth in national income, for instance, is usually equated with a rise in living ...

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