What is National income and its importance.

Answer Details

National income is the total money value of all final goods and services produced by the nationals of a country within a given period, usually one year. It is also the sum of all incomes (wages, rent, interest and profit) earned by the factors of production in that period.

Importance of national income

• Measures the standard of living: national income per head (per capita income) gives an indication of the average welfare of the people.
• Shows economic growth: comparing national income over the years reveals whether the economy is growing or declining.
• Reveals the structure of the economy: it shows the contribution of each sector (agriculture, industry, services) to total output.
• Aids economic planning: government uses the figures to plan, allocate resources and set realistic targets.
• Enables international comparison: it allows a country's economic performance to be compared with that of other countries.
• Shows income distribution: it indicates how income is shared among the people and guides policy on inequality.
• Guides government policy: it is a basis for fiscal, monetary and taxation decisions.