Some countries are rich, some are poor and yet some others are in-between. How do we measure the performance of an economy? Performance of an economy is related to the level of production (of goods and services) or total economic activity. Measures of national income and output are used in economics to estimate the total value of production in an economy. The standard measures of income and output are Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI), Net National Product (NNP), and Net National Income (NNI). In India, the Central Statistical Organisation has been estimating the national income.
You measure your academic performance in relation to other students by the percentage of the marks scored by you. Similarly a country's economic performance has been measured by indicators of national income such as GDP or GNP. Further, measuring national income is essential for various purposes that include projection about the future course of the economy, assisting government as the basis to design (or redesign) suitable development policies, helping firms in forecasting future demand for their products and facilitating international comparison.
National income per person or per capita income is often used as an indicator of people's standard of living or welfare. However, many development economists have criticized that GNP as a measure of welfare has many limitations. They argued that human well-being does not depend on national income alone. As measures of GNP exclude poverty, literacy, public health, gender equity, and many human issues of well-being, they developed other measures of welfare such as the Human Development Index (HDI).
Some rich countries in terms of national income are poor in human development. Similarly, poor countries in terms national income have performed well in human development. In the case of India, though the GDP is growing faster, its performance in terms of HDI is far below than that of many countries.
National income is a measure of the total value of the goods and services (output) produced by an economy over a period of time (normally a year). It is also a measure of the income flown from production, and/or the sum total of all the spending involved for the production of output. The following are some of the notable definitions.
'The labour and capital of the country acting on its natural resources produce annually a certain net aggregate of commodities, material and immaterial, including services of all kinds' This is the net annual income or revenue of the country, or the national dividend.'
'The national dividend or income consists solely of services as received by ultimate consumers, whether from their material or from their human environment.'
' National income estimate measures the volume of commodities and services turned out during a given period counted without duplication.'
' Gross national product (GNP) is the most comprehensive measure of a nation's total output of goods and services. It is the sum of the dollar (money) value of consumption, gross investment, government purchase of goods and services and net exports'.
Though there are some variations among these definitions, the basic idea is very clear - national income is simply the income of the whole nation. The basic concepts will help to understand it more precisely.
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