National accounts Arriving at a figure for the total production of goods and services in a large region like a country entails a large amount of data-collection and calculation. Although some attempts were made to estimate national incomes as long ago as the 17th century,  the systematic keeping of national accountsof which these figures are a part, only began in the s, in the United States and some European countries. The impetus for that major statistical effort was the Great Depression and the rise of Keynesian economicswhich prescribed a greater role for the government in managing an economy, and made it necessary for governments to obtain accurate information so that their interventions into the economy could proceed as well-informed as possible.
Definitions of National Income: The definitions of national income can be grouped into two classes: One, the traditional definitions advanced by Marshall, Pigou and Fisher; and two, modern definitions.
This is the true net annual income or revenue of the country or national dividend. And to this, must be added income from abroad. Though the definition advanced by Marshall is simple and comprehensive, yet it suffers from a number of limitations.
First, in the present day world, so varied and numerous are the goods and services produced that it is very difficult to have a correct estimation of them. Consequently, the national income cannot be calculated correctly.
Second, there always exists the fear of the mistake of double counting, and hence the national income cannot be correctly estimated.
Double counting means that a particular commodity or service like raw material or labour, etc. For example, a peasant sells wheat worth Rs. If each time, this wheat or its flour is taken into consideration, it will work out to Rs.
Third, it is again not possible to have a correct estimation of national income because many of the commodities produced are not marketed and the producer either keeps the produce for self-consumption or exchanges it for other commodities.
It generally happens in an agriculture- oriented country like India. Thus the volume of national income is underestimated. Pigou has in his definition of national income included that income which can be measured in terms of money. It has proved to be more practical also. While calculating the national income now-a- days, estimates are prepared in accordance with the two criteria laid down in this definition.
First, avoiding double counting, the goods and services which can be measured in money are included in national income. Second, income received on account of investment in foreign countries is included in national income.
The Pigouvian definition is precise, simple and practical but it is not free from criticism. First, in the light of the definition put forth by Pigou, we have to unnecessarily differentiate between commodities which can and which cannot be exchanged for money.
But, in actuality, there is no difference in the fundamental forms of such commodities, no matter they can be exchanged for money.
Second, according to this definition when only such commodities as can be exchanged for money are included in estimation of national income, the national income cannot be correctly measured. Similarly, Pigou is of the view that if a man marries his lady secretary, the national income diminishes as he has no longer to pay for her services.
Thus the Pigovian definition gives rise to a number of paradoxes. Third, the Pigovian definition is applicable only to the developed countries where goods and services are exchanged for money in the market. According to this definition, in the backward and underdeveloped countries of the world, where a major portion of the produce is simply bartered, correct estimate of national income will not be possible, because it will always work out less than the real level of income.
Thus the definition advanced by Pigou has a limited scope. Only the services rendered to me during this year by these things are income. But from the practical point of view, this definition is less useful, because there are certain difficulties in measuring the goods and services in terms of money.
First, it is more difficult to estimate the money value of net consumption than that of net production. In one country there are several individuals who consume a particular good and that too at different places and, therefore, it is very difficult to estimate their total consumption in terms of money.
Second, certain consumption goods are durable and last for many years.Learn for free about math, art, computer programming, economics, physics, chemistry, biology, medicine, finance, history, and more. Khan Academy is a nonprofit with the mission of providing a free, world-class education for anyone, anywhere.
A higher national income clearly does not mean a higher standard of living if the extra income is shared among more people. The standard of living depends on the average real income per head or per capital — that is, real national income divided by the population.
(b)What is the equilibrium level of national income?? bn (c)What is the mpcd? 4/5 or 0.
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8 (d)What is the value of the expenditure multiplier? 5 (e)Suppose that full employment yields a national income of?
40bn per annum, by how much must government expenditure . National income. National income is the total value a country’s final output of all new goods and services produced in one year.
Understanding how national income is created is the starting point for macroeconomics.. The national income identity. A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted national income also called as NNI at factor cost (NNI* adjusted for natural resource depletion).
All are specially concerned with counting the total. N ational income accounts (NIAs) are fundamental aggregate statistics in macroeconomic analysis. The ground-breaking development of national income and systems of NIAs was one of the most far-reaching innovations in applied economics in the early twentieth century.
NIAs provide a quantitative basis for choosing and assessing economic .