National Income Stastics

BRAIN FUSION ACADEMY NATIONAL INCOME STASTICS
NATIONAL INCOME
STASTICS
1
BRAIN FUSION ACADEMY

NATIONAL INCOME STASTICS

This is the money measure/ money value of all final goods and services produced in the country or a
nation in the given period of time usually one year. National income considers the flow of output of
commodities, the income and expenditures. It considers the final goods arising from the productive
activities. National income can be referred to as national products.
Gross domestic product (GDP). This is the money measure/monetary value of all goods and
services produced within the territorial boundaries of a country in a specific period of time. It considers
the value of all goods and services produced by all residents in the country irrespective of whether they
are national or non-nationals. GDP does not take into account depreciation of capital that why it called
gross.
Gross national product. This is the money value of all goods and services produced or income
earned by the nationals of a country living within the country in a specific period of time and those living
outside the country in a given period of time. It does not take into account depreciation of capital and it
excludes income earned by the foreigners who are living in that country. The relationship between GDP
and GNP is such GNP=GDP + Net factor incomes from abroad ( the income of the nationals abroad-
incomes of foreigners in the country)
Net domestic product. This is the money value of all goods and services produced in a country
after subtracting depreciation. Depreciation refers to the loss in value of fixed assets due to wear and
tear and obsolescence. NDP=GDP-depreciation or net income=gross income – depreciation.
Depreciation can also be regarded as capital consumption allowance in national income.
Net national product (NNP)

This is the money measure/value of goods and services produced by the nationals within and outside
the country in a given period of time after subtracting depreciation.
National income at factor cost. This is the money value of all final goods and services produced
in a country in a given period of time considering what is paid to the factors of production. National
income at market price. This is the money value of all final goods and services produced in the country
considering the current market prices/valued at current market prices.
National income at market price=national income at factor cost - indirect taxes. NYmp =NYfc + indirect
taxes- subsidies.
Personal income This is income received by individuals or households in a given period of time. It
includes income from employment, as paid labour, income from self-employment and transfer income
and rental incomes but it excludes undistributed profits and other income which is not currently
received. personal income =sum of all incomes from paid employment incomes from selfemployment
transfer income rental income –(undistributed profits incomes not yet received). It’s important to note
that personal income is not equal to national income because personal income includes income from
non-productive activities while national income excludes such incomes. A personal income includes

transfer incomes like student’s grants and allowances, pension funds but national income excludes
those transfer incomes.
Disposable incomes (Yd0) This is income which is available to individuals or households for
consumption, spending and saving. It is that income which is left to individuals and the households after
personal, direct taxes and compulsory payments have been deducted. Yd =GDP -Any part of income not
paid to the households or Yd=personal income- personal direct income taxes compulsory payments
Per capita income. This is the average income per individual in a country at a given period of time.
Real income. This is income in terms of goods and services which a given amount of money income can
buy in a given period of time. It is the purchasing power of a given amount of nominal income.
Real Income = National Income x 100 Price index (GDP deflates
Nominal income is the income expressed in monetary units like pound sterling, dollar etc.
Real income is determined by the following; The price of goods and services; When the price is high
real income is low and when prices are low, real income is high.
The level of nominal income; When nominal income is high real income is also high assuming
other factors constant.
The level of taxation. High taxes reduce real income and low taxes lead to high real income. The
cost of living.
The cost of living refers to the amount on money needed to purchase a given basket of
commodities at a particular period of time.
When the cost of living is high real income is low and when the cost of living is low real income is high.
Availability of goods and services. When goods and services are readily available, real income
is high but when goods and services are inconvenient (hard and difficult to get) the real income is low.
The size of monetary/subsistence sector. When the subsistence sector is small and all the
transmission are at the use of money, real income is low but where the subsistence sector is big and its
possible for individuals to produce for their own consumption, real income is high.
REASONS WHY COUNTRIES DO NATIONAL INCOME

ACCOUNTING (NECESSITY OF NATIONAL INCOME STATISTICS)
A. The statistics are used to compare standard of living of the people in the country over time, where
standard of living refers to the way in which people live or aspire to live in terms of their accessibility to
goods and services.
B. The statistics are used to compare standard of living between people of different countries.
C. The statistics are used to indicate the rate of economic growth of a country.

D. Are used as a measure of economic development assuming other factors constant, persistent
increase in national income leads to economic development.
E. They are used in planning because they show the incomes, savings, consumption and investment
levels which can be used to program taxation.
F. They are used in national policy analysis to see the impact of certain policies by comparing statistics
before and after the policy e.g. privatization, economic liberalization etc.
G. National income statistics are used to identify the national expenditure pattern of a country and plan
how to influence such a structure for national development.
H. They are used to identify the leading sectors in the economy and those sectors which are lagging so
that appropriate action can be made.
I. They show the contribution of private and public sector, agriculture and industrial sector which can
guide in structural adjustment programs.
J. Used to determine or show income distribution among the factors of production (using the income
approach) in order to plan for appropriate action.
K. Used to show the imports and exports of a country and therefore can help a country to know its
dependency on other countries and its contribution to the international economy.
L. They are used to show the extent of a country’s dependency in terms of sectoral dependency,
geographical concentration on trade and commodity concentration of trade
M. They are used to show the level of international transactions and the balance of payment position of
a country
N. Used when appealing for international aid because international donors and lenders usually look at
national income statistics to identify the areas in which they can help.
O. Can be used to compare country’s performance over time and in relation to other countries.
P. The national income figures especially per capita income are used to help determine the size of a
country’s population.
Q. Used to help in national policy formulation e.g. budgeting, employment policy etc.
FACTORS WHICH DETERMINE A COUNTRY’S LEVEL OF

NATIONAL INCOME
 Natural resource endowment (stock and quality of natural resources like mineral deposits,
forests, fertility of soils). A country which has a wide variety and quality resources has higher
national income compared to one with few resources.
 Size and quality of labour force. A country that has a large, healthy and skilled labour has higher
level of national income compared to a country with unskilled and unhealthy low labour force.
Level of technology (state of technical know-how).

 A country with high level of technology with research and innovations has high level of national
income compared to a country with low levels of technology.
 The extent of the market. A country which has a wide market both internal and external has the
incentive to increase production from time to time and therefore has high national income but a
country with limited market has low national income. Level of monetarisation.
 A country which has a high level of monetarisation and production is basically for sale has high
national income compared to a country which is predominantly subsistence in nature.
 Population growth rate. A country with high population growth rate cannot save a lot for capital
accumulation and investment. This leads to low levels of output and national income compared
to a country where the population is low and saving and capital accumulation are done to
increase on the level of national income.
 Level of industrialization. A country with high level of industrialization has high level of national
income but a country which is basically agro based has low level of national income.
 Political stability and security of a country. A country with a stable political atmosphere and
security of person and property attracts foreign capital, encourages both local and foreign
investments and allows for constant productions leading to high national income but in a
country where there is persistent instability and insecurity which spoils the investment climate
and deters production, the level of national income is low.
 State of infrastructure. A country with good and advanced infrastructure with allweather roads,
railways, banks, hospitals, good airway system which help in the mobilization of resources and
transportation of output has high level of national income compared to a country where the
infrastructure is poor.
 Social constraints/ cultural rigidities. A country which has a conservative population and the
cultural practices are rigid and regressive has low level of national income compared to a
country where the population is progressive with no cultural rigidities.
 The entrepreneurial abilities in the economy. A country with many entrepreneurs who are
willing to take risks and invest in a range of productive activities has a high level of national
income compared to a country where there are very few entrepreneurs.
 Access to foreign loans, grants and other forms of foreign aid. A country which has access to soft
loans, grants from international community is able to increase its productive capacity compared
to a country which has no access to foreign aid.
 Government action or political will. A country where the government through its polices like
taxation, monetary policy favours production, the level of national income is high but a country
where the political will is poor and the policies are un favourable national income is low.
 Pattern of resource ownership. In a country where resources are owned and controlled by
private individuals, there is self-interest which propels high production which leads to high levels
of national income but where the public sector predominates, there is inefficiency in production
leading to low levels of national income.
METHODS OF MEASURING OF NATIONAL INCOME

National income is measured using 3 main approaches or methods/approaches.
Income approach (Y)

Expenditure approach (E)

Output/ value added approach (O)
Y=E=O
The approach ideally should produce/ yield identical results such that income expenditure = output.
This identity can be presented on a circular flow of income which is the diagrammatic representation of
the flow of income and expenditure between the firms and household
HOUSEHOLSDS
Goods/services
FIRMS
Factor payments payments for
Goods and
Services
Income is equivalent to expenditure because;
What the factors of production earn as income is all spent on goods and services produced by the firm.
O=Y because,
The value of the output of the firms is the same as the income received by the various factors of
production which contributed to production.
O=E because,
Every time something is produced and sold by the firm, its value is the same as the consumer’s
expenditure on it.
This identity (O=Y=E) is true under the following assumptions;
i. There are two economic units or sectors namely the firms and households.
ii. Firms own no factors of production; they buy all the factor services from the house holds and
pay for them.

iii. . Although the households own factors of production, they do not produce any goods and
services. iv.
iv. The economy is closed with no government or foreign interference
v. The economy is spending thrift. There is no saving; all the incomes which are received by
households are used for expenditure on goods and services.
vi. All that the firms earn from the sale of goods and services is made out as factor payments to
the households.
vii. There are no withdrawals, or injections from the circular flow/ in the flow between the firms
and households.
FACTOR INCOME APPROACH

In this approach, national income is the summation of all factor payments or incomes excluding
transfer payments.
NATIONAL INCOME/GDP=SUM WRIP-T P
W=WAGE, I=INTEREST, R=RENT, P=PROFIT, TP= TRANSFER PAYMENTS Transfer payments are
incomes received by individuals where no defect service of goods has been received e.g. pocket
money, student allowances, employment allowances etc.
This approach focuses on aggregating the payments made by firms to households, called factor
payments. This gives National Income, defined as total income earned by citizens and
businesses of a country. There are essentially four components to this method of calculation
1. Wages and Salaries: Involves payments by firms to households for their labor services, i.e.
wages and salaries, inclusive of all fringe benefits (example: pension contributions) before
taxes.
2. Rent: This involves rental income, and income from activities of farms and nonincorporated
non-farm entities.
3. Interest Payments: Interest Incomes on loans.
4. Profits (In the form of dividends): Before tax profits of firms that are owned by the
households and the government. Only incorporated firms with limited liability are included
here. National Income is just the sum of the four components. We need to add indirect taxes
(sales tax, and taxes on production: In Zimbabwe, the most important indirect tax is the
provincial excise and retail sales tax, and the Goods and Services Tax.), less subsidies (example
such the heavily subsidized agricultural sectors of Zimbabwe) and add depreciation (Capital
Consumption Allowance) to get GDP.
Why do we add indirect taxes, less subsidies, and add depreciation?

1. Indirect taxes are added because these taxes escape the firms, and the consumers. Put
another way, if the firm does not include it, they cannot pay for it in wages, and if it is not
included in wages, it is not included in our calculations above. Hence the name Indirect Taxes.

2. Subsidies from the government raises income to the recipient, i.e. the firms or farmers who
are being subsidize. This is turn is financed through taxes, which has already been added back in
our calculations as part of income, profit, and indirect taxes. (Recall the double counting
problem)
3. A firm’s profit is calculated net of depreciation, and yet we know it is in GDP, but not NDP. So
to obtain GDP, we have to add the depreciation back.
The problems associated with using this method include;
Double counting: This is where an item is counted more than once. There is limited information
or data because of the unwillingness of individuals to tell the truth.
It’s hard to tell the net factor incomes from abroad because the nationals who live broad do not
declare their earnings. It is hard to get information on capital gains: These are incomes got by
owners of assets whose values have appreciated between the time of purchase and the time of
sale and this is earned income and should be deducted to avoid double counting. Valuing
unpaid for services like services for house wives. It is difficult to calculate depreciation
allowance. It is hard to determine the boundary of production like whether to include the
incomes of subsistence sector
EXPENDITURE APPROACH
This method considers the total expenditure incurred on final goods and services produced by
firms and individuals during the course of the year.
National income income/GDP= CIG(X-M) where
C= expenditure on consumer goods by households.
I= investment expenditure by the firm on fixed capital assets like factories, ware houses,
machinery.
G= government expenditure on goods and services.
X-M = net external expenditure (exports- imports)
GDP is made up of the sum of 4 expenditure items, namely,

1. Consumption (C): Personal Consumption made by households the expenditure of which is
paid by households directly to the firms which produced the goods and services desired by
the households.
2. Investment (I): Savings with financial institutions, which in turn are reinvested back into the
firms through loans and other financial markets instruments. Investments come in the form of
business spending on equipment, building structures, and inventories. Note that household
spending on new owner occupied housing are included here as opposed to personal
consumption. Note that the calculation here involves the decrease in an asset’s value
(depreciation), either through wear and tear during use, or obsolescence. We focus on Net
Private Investments = Gross Private Domestic Investment – Depreciation. By doing so, we
eliminate investment purely as replacement of depreciated equipment and such.

3. Government Expenditure (G): Individuals have to pay personal taxes which are in turn used
by governments in the provision of public goods. This public goods involve in turn goods and
services provided by firms.
4. Net Exports (X-IM): Expenditure on foreign made products (Imports) are expenditure that
escapes the system, and must be subtracted from total expenditures. In turn, goods produced
by domestic firms which are demanded by foreign economies involve expenditure by other
economies on our production (Exports), and are included in total expenditure. The combination
of the two gives us Net Exports.
In short, it can be written as GDP=C+I+G+(X-IM). This essentially relates to how households may
spend their income. Note further that Net Domestic Product (NDP) is just GDP less depreciation.
That is NDP= C+I+G+(X-IM)-Depreciation. However, due to the difficulty regarding the
calculation of true depreciation, economist use conventional rule of thumb, and in recognition
of that difficulty, we do not in fact term the adjustment subtracted as depreciation, but Capital
Consumption Allowance
Problems met in using this approach;

A. Differentiating between expenditure on final and intermediate goods.
B. Limited data or information as individuals and firms are reluctant to give accurate
information.
C. It’s very difficult to determine the expenditure on imports because some goods are not
declared by the importers.
D. It’s difficult to ascertain expenditure on transfer payments, government on the army and
this leads to under valuation or over valuation
E. . It is difficult to know what is spent in the subsistence sector in terms of value
OUTPUT/VALUE ADDED APPROACH
This method is used to measure national income in different phases of production in the
circular flow. It shows the contribution (value added) of each producing unit in the
production process
i. Every individual enterprise adds certain value to the products, which it purchases from
some other firm as intermediate goods.
ii. . When value added by each and every individual firm is summed up, we get the value
of national income.
value added Method is also known as:

(i) Product Method;
(ii) (ii) Inventory Method;
(iii) (iii) Net Output Method;
(iv) (iv) Industrial Origin Method;

(v) (v) Commodity Service Method.
Concept of Value Added:
Value added refers to the addition of value to the raw material (intermediate
goods) by a firm, by virtue of its productive activities. It is the contribution of an
enterprise to the current flow of goods and services. It is calculated as the
difference between value of output and value of intermediate consumption.
Value Added = Value of Output – Intermediate Consumption
How to Measure the Value of Output?

(i) When the entire output is sold in an accounting year, then: Value of
Output = Sales
(ii) When the entire output is not sold in an accounting year, then the
unsold stock is added to the value of sales. Unsold stock is the excess
of closing stock over opening stock and is termed as ‘Change in Stock’.
It means, Value of Output = Sales + Change in Stock, Where, Change in

stock = Closing stock – Opening stock One More way to Calculate Value
of Output
Steps of Value Added Method:
The main steps for estimating national income by Value Added

Method are
: Step 1: Identify and classify the production units: The first step is to
identify and classify all the producing enterprises of an economy into
primary, secondary and tertiary sectors.
Step 2: Estimate Gross Domestic Product at Market Price: In the

second step, Gross Value Added at Market Price (GVAMP) of each
sector is calculated and sum total of GVAMP of all sectors give
GDPMP,i.e. ∑GVAMP = GDPMP.
Step 3: Calculate Domestic Income (NDPFC): By subtracting the

amount of depreciation and net indirect taxes from GDPMP, we get
domestic income, i.e. NDPFC = GDPMP – Depreciation – Net Indirect
Taxes.
Step 4: Estimate net factor income from abroad (NFIA) to arrive at

National Income: In the final step, NFIA is added to domestic income to
arrive at National Income. National Income (NNPFC) = NDPFC + NFIA

Precautions of Value Added Method:
The various precautions to be taken in Value Added Method

are
: 1. Intermediate Goods are not to be included in the national income
since such goods are already included in the value of final goods. If
they are included again, it will lead to double counting.
2. Sale and Purchase of second-hand goods is not included as they

were included in the year in which they were produced and do not add
to current flow of goods and services. Value Added Method However,
any commission or brokerage on sale or purchase of such goods will be
included in the national income as it is a productive service.
3. Production of Services for self-consumption (Domestic Services) are

not included. Domestic services like services of a housewife, kitchen
gardening, etc. are not included in the national income since it is
difficult to measure their market value. These services are produced
and consumed at home and never enter the market place and are
termed as non-market transactions. It must be noted that paid
services, like services of maids, drivers, private tutors, etc. should be
included in the national income.
4. Production of Goods for self-consumption will be included in the

national income as they contribute to the current output. Their value is
to be estimated or imputed as they are not sold in the market.
5. Imputed value of owner-occupied houses should be included.

People, who live in their own houses, do not pay any rent. But, they
enjoy housing services similar to those people who stay in rented
houses. Therefore, value of such housing services is estimated
according to market rent of similar accommodation. Such an estimated
rent is known as imputed rent.
6. Change in stock of Goods (inventory) will be included. Net increase

in the stock of inventories will be included in the national income as it
is a part of capital formation.
General problems met in national income accounting:
These problems are broadly grouped into;

a. Statistical problems. These concern the availability and accuracy of

data or statistics.
b. Conceptual problems. These are to do with questions of
interpretation and those over which economists are not agreed e.g.
what to include and exclude.
c. The problems therefore include
d. Double counting. Counting an item more than once.
e. Inventories. What value to give the production year or selling year

prices.
f. Difficulty in estimating government expenditure on transfer

payments e.t.c.
g. Measurement of depreciation in a given year.
h. Inflation. During an inflationary period, it becomes difficult to give

the produced goods and services reliable monetary value.
i. Problems of omission and commission or errors.
j. It’s hard to determine the value of/ attached to subsistence or no

marketable output (S&C).
k. Illegal practices, income from such illegal and undesirable practices

such as smuggling, production of illegal products, prostitution, brewing
of local beer, are not taken into account yet they yield income. This
makes it difficult to calculate national income correctly.
l. Boundary of production. It’s hard to determine/decide what to

include and what to exclude.
m. Timing of production. I.e. when should accounting occur.
n. It is hard to get the value of the net factor incomes from abroad.
o. It’s hard to determine the suitable method to use. GDP, GNP, NNP
will give you different figures.
p. Inadequate information/ statistical data over under estimates

incomes abroad, output, expenditure.

q. Problem of people who are self employed.
USING NATIONAL INCOME STATISTICS AS A BASIS OF

COMPARISON
A. Sometimes the GDP or GNP per capita figures are used to measure
the standard of living and welfare in a country over time.
B. Standard of living. Refers to the way people live/hope or aspire to

live in relation to their access to goods and services.
C. It is generally assumed that an increase in GDP or GNP and GDP or

GNP per capita would mean improvement in the standard of living and
indicate economic development, but depending on such figures
without looking at other aspects wouldn’t show a true picture because
even as GDP or GNP and GDP or GDP per capita increases without the
following;
D. The price levels may be increasing faster than growth in GDP such
that real income wouldn’t increase and standard of living not
improved.
E. The quality of goods may be falling despite the increase in their

volume.
F. There may be political instabilities that may hinder people from

enjoying security, leisure e.t.c
G. The income may be unevenly distributed (skewed distribution) such

that the few rich have a lot of income but the majority are poor.
H. Increase in income may be accompanied by increase in population

by a greater magnitude.
I. The increase in income may be accompanied by increase in

mechanization that would lead to unemployment of the majority.
J. Increase in output may be generated at the expense of leisure.
K. The increase in national income may be followed by increase in taxes

which reduce the disposable income.
L. The increase in income may be as result of increased output of

capital goods and not consumer goods that increase welfare.

M. There may still be existence of conservatism and poor attitudes by

the population.
N. There be lack of political and other aspects of freedom.
O. There may be increase in pollution because of incorporating

subsistence output of goods and services.
P. Increase in the GDP and GNP per capita figures may be as a result of
statistical errors or improvement in the availability of statistical
information
Q. Increase in GDP is being spent by the government on military

hardware and equipment rather than on commodities to improve the
standard of living of the people..
R. Note;
S. The above arguments can be used to show why economic growth

may not necessarily imply economic development.
T. National income statistics- GDP and GNP and GDP or GNP per capita
is also used to compare welfare and standard of living between
countries.
U. It is taken that a country with higher GDP and GNP and GDP or GNP
per capita is better off than its counterpart and more developed e.g. if
Zimbabwe’s GDP and GNP per capita is higher than that of Zambia it is
assumed that Zimbabwe is more developed than Zambia and the
average Zimbabweans are better off than Zambians.
Difficulties in using national income statistics for making comparisons

over time or between countries
National income figures are used to compare changes in standards of
living but there are difficulties
(a) Methods of calculating national income may differ over time or

between countries.
(b) Levels of self-sufficiency may differ – the more self-sufficient

people are, the more output will be under-recorded.

(c) Standard of living is measured by income per person (per capita) so

population changes must also be measured. Accuracy of comparisons
between years or between countries therefore also depends on the
accuracy of population figures.
(d) Statistics have to be adjusted for inflation – accuracy depends on

accuracy of inflation figures.
(e) Statistics do not show differences in the range, design and quality
of goods and services.
(f) Statistics do not show differences in working conditions, hours and

leisure time.
(g) Statistics do not show differences in income distribution –

distribution of an increase in national income amongst citizens may be
inequitable, so although the average per capita income rises, the
standard of living of all citizens may not.
(h) Social costs are not taken into account, e.g. the output of cars is
recorded but their associated social costs of pollution and congestion
are not.
(i) Spending on defence or space may account for an increase but

may do little for the standard of living of the people.
The indicators of standards of living
Gross Domestic Product (GDP) - this is the value of all goods

and services produced within a country. It is usually measured
in US$ and calculated per capita. This makes comparisons
between different countries easier. Alternatively you could be
faced with Gross National Product (GNP). The difference is
that GNP also includes goods and services produced by that
country overseas. GDP is probably the most widely used
indicator. It implies a lot about the country. If the figure is high
it suggests they have a large number of productive industries
producing goods. It also suggests that the service industry is
well developed. (Services include things such as hospital and
schools. If the figure is low it suggests that the country has few
industries and few services so therefore a poor standard of
living.)

Advantages of using Disadvantages of using

GDP/GNP as an indicator: GDP/GNP and an indicator:
A useful figure for Can hide inequalities as it
comparing countries. Often does not show the
used to rank countries to distribution of wealth.
establish a fair system of aid
payments.
Is a good indicator of the Can be manipulated by
state of the economy and governments who want to
provision of services. appear poor to collect more
aid.
Fairly easy to calculate from Does not take into account
official government figures subsistence or informal
economies which are very
important in less developed
countries.
NATIONAL INCOME- ZIMBABWE’s CASE

ZIMBABWE’S
GDP TENDS TO BE LOW BECAUSE OF THE

FOLLOWING
1. Few raw materials that cannot be exploited to raise the level of GNP.
2. Low level of technology. This leads to slow production process so not
a lot of goods and services are produced.
3. Low capital equipment or little capital equipment machines that
make it hard to exploit the available resources fully.
4. The manpower is mostly unskilled with low productivity and

efficiency and this limits output at national level.
5. High population growth rate of about 3% per annum deter the

savings and capital accumulation as well as investment which would
lead to increased output.
6. Poor infrastructure limits access to raw materials sources and

increases costs of production and this deters high output levels.
7. Low market/limited trade possibilities both at local and

international levels discourage large scale increase in output.

8. Poor terms of trade. The country’s exports are mainly agricultural

whose prices on the international scene are ever falling compared to
the prices of imports that continually increase and as a result there is
limited importation of capital equipment to use in the production
process and resource exploitation.
9. Poor political will. There is a lot of embezzlement of funds that
would have been invested. The poor policies by the government
discourage small private investors and this restricts production and
output.
10.Political instabilities diverts funds from productive activities and

discourages production.
11.Heavy dependence on nature tends to lead to fluctuations in

output as well as income and this discourages production.
12.Zimbabwe tends to use the output approach for national income

accounting because;
13.It’s direct and easier to get data using this method
14.It takes into account, the contribution of the subsistence sector

which is a big sector in Zimbabwe
Evaluation use of national income statistics
Usefulness Limitations
Economic growth Inaccuracies
– output going unrecorded,
 _ Can measure changes in figures understate output
output as well as the rate of  Nonmarket activities
economic growth Gives an insight  Volunteer work,
into living standards _ Is housekeeping etc. are not
measured on a year-to-year basis recorded in NY figures
on increases in national output  Underground economy
Illegal – drug dealing,
prostitution etc. Legal
– moonlighting with double
jobs etc. Hidden from
government records
Comparisons across countries International comparisons 
Procedures differ from country
_ Measure economic strength of to country
countries Determines countries’  Inaccuracies in data provided
levels of development Determines  Conversion to common

whether countries are in need of currency is required (PPP is

aid sometimes used)
 Difference in culture
_ Classification of countries  Differences in population
Developed/developing etc. based sizes
on per capita income  Differences in size of
underground economy
 May be in different phases of
the business cycle – e.g
.  peak vs. trough
Measures contributions from Measuring welfare/SOL

various sectors _ Determines if  Leisure time
income is fairly distributed  As GDP increases, leisure
Formulating future policies time may have to be
 sacrificed
o Can forecast, as well as – value placed on recreation
interpret trends may not be
o Economic planning,  considered
policymaking etc  Environmental degradation
 Pollution not considered as
Note Though GDP does not costs to rise in output
measure economic well-being, it ,  finite resources may be
is positively associated with many depleted
things people value including a  Income inequality
higher material standard of living,  Distribution of income,
better health and longer life proportion on spending not
expectancies, higher literacy rates  reflected
and educational attainment  Higher output/production
does not necessarily
 improve consumption
– e.g. defence spending

National Income Stastics

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BRAIN FUSION ACADEMY NATIONAL INCOME STASTICS

BRAIN FUSION ACADEMY

BRAIN FUSION ACADEMY