Question

Give significance of national income.

Answer 1

The significance of national income has been discussed below:

1. Basis of economic welfare: National income analysis enables us to compare the standard of living of people in different countries or at different times in the same country. A higher per capita income generally indicates a higher standard of living and greater economic welfare.
2. Inflationary and Deflationary gaps: National income statistics help identify inflationary and deflationary pressures in the economy.
3. Basis of economic structure: It provides detailed information about the contribution of various sectors like mining, fisheries, transport, and trade to the economy.
4. Basis of economic policy: Policymakers rely on national income data for planning and formulating economic policies related to income, output, savings, and consumption.
5. Basis of budgetary policies: Governments formulate taxation, borrowing, and expenditure policies based on national income data to stabilize the economy.
6. National expenditure: National income data assist in understanding how income is distributed across different groups in the country.
7. Basis of the distribution of national income: We can learn more about the country’s national income distribution thanks to the national income data.
8. Distribution of grants-in-aid: In a federal system, the central government uses national income figures to allocate financial grants among states.
9. International sphere: National income statistics play a role in determining a country's burden of international payments, as well as quotas in international organizations like IMF, IBRD, and UNO.
10. Special importance for UDCs: It is crucial for analyzing economic problems and backwardness in various sectors in developing and underdeveloped countries.