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National Income accounting.

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Introduction

INTRODUCTION National Income accounting is used in every country to determine the pace of economic activity, how rapidly output will grow, and why an economy is subject to unexpected fluctuations. National income statistics provide economists with methods of how to explain all of these and then formulate appropriate monetary or fiscal policies in order for sustainable growth of that economy. This essay explains what National Income accountants and economists understand about such statistics, and why they regard them to be useful. It further discusses a few of the many problems surrounding computation and use of the statistics. These statistics can be described as the data used by economists to numerically measure overall production of an economy for a number of purposes. It helps economists show the economic behaviour of the economy's participants. It consolidates information on some important aspects of the economy. This set of statistics allows for the calculation of various indicators in the form of rates, ratios or percentages, which may help policy makers. Basically, it is the measure of all income and expenditure flows in order to determine an economy's state of well-being, performance as compared to other countries, and a comparison of production levels at regular intervals by national income accountants (McConnell and Brue 116). ...read more.

Middle

o Expenditures by Foreigners (Xn): Foreign expenditure involves foreigners' spending on a country's exported goods. Deduction of imports from exports helps national income accountants to arrive at a Net Export figure that can be added to the other categories in calculating GDP. THE INCOME APPROACH TO CALCULATING GDP: The Income approach, on the other hand, helps determine GDP through the summing up of all expenditures on all income earned by the suppliers of the resources used to produce the total output during the year, after some statistical adjustments. These components are: Wages, Rents, Interest, and proprietors' profits (GDP = Aggregate Income = Wages + Rent + Interest + Profit) (McConnell and Brue 122). o Wages (Employee compensation): This is how resource owners are remunerated for supplying their resources in production. Net wages and salaries are also included in this category. o Rent: This is payment for the use of factors such as land and buildings by firms. o Interest: These are interests received by households for giving out loans less interests paid for borrowing from financial institutions. o Profit: Income for firms, or some that is given to households as dividends. ...read more.

Conclusion

In the first case, for instance, by focusing only on final output, it could be tempting to conclude that consumer spending is more important than capital investment in an economy, based on the fact that consumption expenditures usually represent a greater part of GDP. Furthermore, since non-marketed activities like underground economy operations are ignored by National accounts, they remain omitted from the total national income, together with other fragments like health and life expectancy of resource owners, environmental factors, and many others. Also, since subsistence agriculture is not recorded as output in a country's economy, there can never be accurate recording of overall output as has been claimed by these accounts. CONCLUSION As has been discussed in this writing that National Income statistics are vital in the determination of an economy's welfare, policy formulation and adjustment, and establishment of trends that aid forecasting future economic growth, it can therefore be safely concluded that even with the inevitable inaccuracy with which these data are associated, there could never be any other interesting and closely approximate concept as National Income Accounting. Economists therefore benefit largely in relying on such a concept so as to provide adequate information on how entities like income distribution and economic performance are to be improved. ...read more.

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