Which one of the following statements about national income is correct? O A

National income is the market value of the annual output net of consumption of fixed capital. National income is the total value of final goods and services produced in a country in one year. Gross National Income (GNI) is defined as GDP (Gross Domestic Product; income earned by a country with the production activities in its economic territory) plus the total receipts from salaries, wages, property income tax and subsidides of the country citizens abroad minus the income earned in the domestic economy by non residents. Per capita Gross National Income and (GNI) and Net National Income (NNI) are commonly used to compare income levels.

Wages and salaries from abroad are those that are earned by residents who essentially live and consume inside the economic territory but work abroad or for those who live and work abroad for only short periods and whose centre of economic interest remains in their home country. In most countries, net receipts of property income account for most of the difference between GDP and GNI. Countries with large stocks of outward foreign direct investment may be shown as having large receipts of property income from abroad and therefore high GNI even though much of the property income may never actually be returned to the country but instead added to foreign direct investment.

Methods of measuring National Income

1. Value added method - (Output method) in this method the national income is found by adding the value of a product at every stage of its production.

2. Income method - In this method national income is calculated by adding factor income like rent, wage, interest and profit that is earned in a year by a country.

3.Expenditure method - In this method national income is calculated by adding the total expenditure made by a country in a year.

Limitations of measuring National Income

The practical difficulties in the measurement of both international flows of wages, salaries, property income and of depreciation.

Importance of National Income   

1. To find the speed of the economic growth of the country by comparing the previous years growth.

2. To make international comparison of the standard of living of the people.

3. For helping the government to take suitable development plans and policies for the development and growth of the country.

4. To measure the size of the economy and level of countrys economic perfomance.

5. To help businesses to forecast future demand for their products.

6. To make projections about the future development trend of the economy.

7. To fix development targets for diferent sectors of the economy.