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KENYA METHODIST UNIVERSITY

NAME : JOYCE KAGURE MAKARA

ADM NO : BUS-1-6839-3/2011

SUBJECT :PRINCIPLES OF MACRO ECONOMICS

CODE : ECON 102

LECTURER : WARUGONGO

If a country has adopted planning as a means of economic growth then national income data can help in assessing the achievements of planning. secondary and tertiary sectors. 2:National Income as an indicator of success or failure of planning .it is an effective tool for planning and control. These sectors generate factor incomes.Estimates of national income at constant prices indicate economic growth of a country. It is prepared in the light of the information regarding consumption. 7: Makes international comparisons possible . 5: Useful in measuring inequalities in the distribution of income . 6: Useful in measuring standards of income .The expenditure method reveals consumption expenditure and investment expenditure.USES/IMPORTANCE OF NATIONAL INCOME STATISTICS The computation of national income is one of the very important statistics for a country. IT has several important uses and therefore there is a great need for their regular preparation. It means national income is unequally distributed among people.Per capita income is obtained by dividing national income by total population of the country. saving. 8: Budget formation. and investment which are all provided by the national income estimates. If the total consumption expenditure is divided by the total investment expenditure we get per capita consumption expenditure which indicates the average standard of living of the people of the country.We can compare the economies of any two countries on the basis of their national income data. The extent of inequality in a country can be measured from the national income data collected through the income distribution methods. 4: Useful in assessing the performances of different production sectors .Production units of a country are broadly classified into primary.All individuals so not have the same income. 3: Useful in estimating per capita income . 9: National income accounts reflect the structural change in a growing economy . The following are some of the important uses of national income statistics: 1: National Income as a measure of economic growth . The data on factor incomes generated by these sectors can be used to measure their relative contributions to national income.

thus countries with the same healthcare standard would have differing GNP's. 6. Welfare is not measured: GDP only measures the market activity and does not take welfare into account. A better measure is the median income level and. 8. Yet per capita GDP is an imperfect indicator of welfare of the representative individual. State services: a country with greater state intervention would have a lower GNP as state services are provided for at cost. the income level by quintiles of the income distribution. Subcategories that are Mis-represented: The various interpretations of what should be included in consumption or government spending plays a big part in the overall determination of GDP. Another limit on per capita income as a measure of well-being is that it flies in the face of the way people think about having children. such distributional measures cannot be directly obtained from GDP data and population and require separate surveys. 3. 4. 5. Different situations may occur that have a negative impact on the people which cause them to increase spending. however.LIMITATIONS OF NATIONAL INCOME STATISTICS 1. 7. Gray market and illegal activities such as production and distribution of marijuana or gambling can be significant sources of sustenance in economies but are not included. therefore increasing the GDP. Decisions are made about what is to be included where. laundry. cleaning. for many analytic purposes. GDP does not account for nonmarket production in the household for example. meal preparation. The economic activity of a country could rise. . Per capita income as an average measure can be a misleading image of the representative resident’s well-being if the distribution of income is very unequal. 2. Errors in Measurement: Black Market and underground activities are not included when calculating GDP. but minor discrepancies will always arise. while welfare could possibly have fallen. Most young couples see themselves as being better off when they have their first baby. This is because there is no way to accurately measure black market activity.. both for indicating the rate of improvement over time and for comparisons across nations. Per capita GDP is frequently used as a measure of welfare.