Importance of National Income Analysis

Today, national income statistics are collected by all the countries of the world for a number of years. Raising national income is the important goal of all economic activity. Economic welfare of a country depends upon what goods and services are available for the consumption of its individuals. The changes in national income statistics show how the economy is developing and enables the government to lay down the appropriate economic policy necessary under the circumstances. With the help of national income statistics it is possible to chart cyclical movements, find out the inflationary gap, measure economic growth and development, and evaluate the country’s material standard of living in comparison with other countries. The following are the main uses of national income.

• 1. Since income is a flow of wealth changes in the national income give some indication of economic welfare. 

• 2. National income is used to compare standards of living in different countries. 

• 3. National income figures are used to measure the rate of growth of a country. 

• 4. The national income accounts make it possible for an analysis of the behaviour of the different sectors of the economy. 

• 5. Inflationary and deflationary pressures can be estimated with the help of national income statistics. 

• 6 National income statistics can be used to forecast the level of business activity at later date, and to find out trends in other annual data. 

• 7. The national income figures are useful in providing a correct sense of proportion about the structure of the economy. 

• 8. In war time, the study of components of national income is of great importance because they show the maximum possible production possibilities of the country. 

• 9. National income statistics can be used to determine how an international financial burden should be an apportioned between different countries. The quantum of national income measures the ability of a country to pay contributions for international purposes, just as the income of a person measures his ability to pay for the upkeep of his country. 

• 10. Above all the national income statistics are used for planned economic development of a country. In the absence of such data, planning will not be possible. 

In the words of Prof. Samuelson, "By means of statistics of national income, we can chart the movements of a country from depression to prosperity, its steady long-term rate of growth and development, and finally, its material standard of living in comparison with other nations".

Notes provided by Prof. Sujatha Devi B (St. Philomina's College)