General Awareness Topic National Income
National Income:
National Income is the most important concept in macroeconomics. It reflects the aggregate activities in the economy. Modern economics have become too complex with innumerable transactions. To understand, analyse and control the behaviour of such economies as a whole, we need some indicators or measuring rods. A private firm maintains accounts to have an understanding of its performance. In the same way, accounts are essential for the economy. Study of national income is important for knowing the level of output income Public and Private consumption pattern in the economy.
National Income implies the income received by the people of a country. For instance, when foreign nationals work in our country. they receive wages, interest and profits. But, these income are not received by our citizens. The national income will not include the value of services generated by foreign banks, insurance companies etc. The income earned by our nationals in other countries (for example doctors, engineers, scientists, banks, airlines, shipping) is apart of our national income.
Definitions of National Income:
The definitions of National Income given by different economists are listed below:
According to Alfred Marshall, "Labour and capital of a country acting on its natural resources produce annually a certain 'net' aggregate of commodities, material and immaterial, including services of all kinds. The word 'net' means that from the gross value of the output, depreciation of capital must be deducted".
According to Pigeon national income "Is that part of the objective income of the community including the income derived from abroad which can be measured in money."
Prof. Fisher based his idea if national income as consumption instead of production. According to him national income refers "Solely to services received by ultimate consumers whether from their material or human environment."
According to Simon Kuznets, "It is the net output of commodities and services flowing during the year from the country's productive system in the hands of the ultimate consumers or into the net addition to the country's capital goods".
Thus, national income means the aggregate value of all the final goods and services produced in the economy in one year.
Determinants of National Income:
The determinants of National Income are:
- Natural Resources: NAtural Resources must be abundantly available, if production in various sectors is to be increased. Fertile soil, minerals (coal, iron) favourable climate etc., can raise the production. Thus, raises national income.
- Labour: Level of employment of labour determines the level of national income. Labour increases the production, thus, increasing national income. National income is high in a country where people are hard working. It is not only the quantity of labour but also the quality which matters.
- Capital: An important role is played by capital in the process of production. Capital includes money, machinery, buildings etc. Which produce further wealth. Level of national income is high in countries where capital intensive methods of production are used. National income depends not only on physical capital but also on human capital.
- Organization: National income can be increased only when the above three factors are efficiently co-ordinated and the process of production is organised. The innovative capacity of organiser plays a prominent role. The availability of resources and their allocation determines the level of national income.
- Other Factors: The credit supplied by banks and other financial institutions, the state policies, standard of education, transport and communications contribute to the national income. The non-economic factors like social customs, traditions, cultural factors, attitudes, moral values, political conditions also influence national income.
0 comments: