(a) Distinguish between personal income and national income (b) Describe any four uses of national income data.

Answer Details

(a) Personal income versus national income: Personal income is the total income actually received by an individual or household within a given period from all sources, including wages, rent, interest, profit and transfer payments such as pensions and gifts. National income is the total money value of all final goods and services produced by the residents of a country, plus net income from abroad, within a given period (usually one year). Thus personal income refers to one person/household, while national income is the aggregate income of the whole nation; national income excludes transfer payments (which are not payment for current production), whereas personal income includes them.

(b) Four uses of national income data:

• To measure the standard of living: Real national income per head (per-capita income) indicates the average welfare of the people and changes in it over time.
• For comparison between countries: It allows comparison of the size, structure and growth of different economies.
• To measure economic growth and performance: Changes in real national income from year to year show whether the economy is growing or declining.
• As a guide to government planning and policy: The figures reveal the contribution of each sector and guide the framing of economic policy and development plans. (They also help in the distribution of income and in determining a country's ability to pay international contributions.)