Uses of National Income Statistics

National Income is a measure of the money value of goods and services becoming available to a nation from economic activities. It can also be defined as the total money value of all final goods and services produced by the nationals of a country during some specific period of time – usually a year – and to the total of all incomes earned over the same period of time by the nationals. Countries measure national income to determine the amount of income it has at its disposal to meet government expenditures. The following is a list of ways in which national income statistics are used in a country.

1) To Determine Amount of Goods and Services Available

We need national income statistics to measure the size of the “National cake” of goods and services available for competing uses of private consumers, government, capital formation and exports (less imports).

3) To Determine Standards of Living

National Income statistics are also used in comparing the standard of living of a country over time and the standards of living between countries. Understanding a country’s standards of living is important when measuring national income because it shows how a country is utilizing its scarce resources to meet the unlimited needs of its citizens.

4) Making Investment Decisions

National Income Statistics assists in investment decisions and this is possible because the data from this statistics may show the sectors which are declining and those growing. Investors would save in growing sectors to save him/her time and cost of conducting market research.

5) To Determine the Importance of Each Economic Sector

If National Income Statistics are disaggregated it would enable us to assess the relative importance of the various sectors in the economy. This is done by considering the contribution of the various sectors to Gross National Product over time. Such information is crucial for planning purposes for it reveals to planners where constraints to economic development lie. It therefore becomes possible to design a development strategy that eventually would overcome these problems. This central contribution could be in the form of employment or the production of goods and services.

6) To Determine a Country’s Dependence on External Trade

By assessing exports and imports as a percentage of Gross national Product, i.e. using national statistics, it is possible to determine the extent to which a country depends on external trade. If the imports’ section of national income statistics comes from imports as compared to exports, then it means that the country is overdependent on external trade.

7) Used for Development Planning

Provides a breakdown of consumer expenditure, government expenditure, levels of investment and total taxes paid to the government. This helps the government to plan for development activities using taxes collected e.g. social amenities provision helps government when making policies regarding investment.

8) Provides Information about the Sizes of Various Economic Sectors

To provide information on the relative sizes of the various sectors of the economy and their contribution e.g. agriculture and manufacturing. This will be determined by the share of each sector in relation to total national output.

9) Provides Information on the Performance of the Economy

Another important use of national income statistics is that it provides information on the performance of the economy over a given period of time and this forms a basis of comparison between different periods. If national income this year is lower than the national income of last year, then the economy looks to be shrinking, and the government should look for solutions to grow the economy.

10) Provides Information for Economic Decision Making

Provide information which is used in making economic policies, preparing annual budgets and preparing development plans. The government uses national income statistics to assess the performance of its economy and prepare budgets aimed at promoting economic development while at the same time meeting recurrent expenditures in the country.

11) Determines the Distribution of Income

National income statistics provides clear information on the distribution of income which helps the government to address income disparities e.g. through subsidies and tax relief.

12) Used as a Measure of Standard of Living

Assists in comparing standards of living, although this method has a number of drawbacks i.e. different currencies are used and conversion may be tedious, definition of goods and services used in computing national income may also differ in different countries, disparity in income distribution and different needs and taste of citizens.

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