Measurement Of National Income:
Economics notes
Measurement Of National Income:
➡️ Gross Domestic Product (GDP): GDP is the total value of all goods and services produced within a country's borders in a given period of time. It is the most commonly used measure of national income and is used to compare the economic performance of different countries.
➡️ Gross National Product (GNP): GNP is the total value of all goods and services produced by a country's citizens, regardless of where they are located. It is used to measure the economic performance of a country over time.
➡️ Net National Income (NNI): NNI is the total value of all goods and services produced by a country's citizens, minus the cost of production. It is used to measure the economic welfare of a country's citizens.
What is national income and how is it measured?
National income is the total value of all goods and services produced within a country's borders in a given period of time, usually a year. It is measured using the gross domestic product (GDP) which is the sum of all final goods and services produced in a country during a given period of time.
What are the limitations of using GDP as a measure of national income?
GDP has several limitations as a measure of national income. Firstly, it does not take into account non-market activities such as household work and volunteer work. Secondly, it does not account for income distribution and inequality within a country. Thirdly, it does not consider the environmental impact of economic activity. Lastly, it does not account for the underground economy or illegal activities.
How does the measurement of national income impact economic policy decisions?
The measurement of national income is important for economic policy decisions as it provides policymakers with information on the overall health of the economy. For example, if GDP is growing, policymakers may choose to implement expansionary policies such as increasing government spending or lowering interest rates to stimulate economic growth. On the other hand, if GDP is contracting, policymakers may choose to implement contractionary policies such as reducing government spending or raising interest rates to slow down inflation.