Question

Explain the importance of National income.

Answer 1

National Income is one of the important subject matter of macro economics. The total income of the nation is called national income. In real terms, national income is the flow of goods and services produced in an economy during a year.

The importance of national income can be explained as follows:

1. For the Economy: National income data is important for the economy of a country. In present times, the national income data are regarded as accounts of the economy, which are known as ‘Social Accounts’. It tells us how the aggregates of a nation's income, output, and product result from the income of different individuals, products of industries, and transactions of international trade.
2. National policies: National income data forms the basis of national policies such as employment policy, industrial policy, agricultural policy, etc. National Income also helps to generate economic models like growth models, investment models, etc. Thus, proper measures can be adopted to bring the economy to the right path.
3. Economic planning: For economic planning, data pertaining to national income is very essential. It includes data related to a country's gross income, output, savings, investment, and consumption which can be obtained from different sources.
4. Economic Research: National income data is also used by the research scholars of economics. They make use of various data of the country's input, output, income, savings, consumption, investment employment, etc., which are obtained from social accounts.
5. Comparison of Standard of Living: National income data helps us to compare the standards of living of people in different countries as well as of people living in the same country at different times.
6. Distribution of Income: National income statistics enable us to understand the distribution of income in the country from the data related to wages, rent, interest, and profits. We understand the disparities in the incomes of different sections of society.