Economics ss3 Uses of National Income Estimate.

 To measure the standard of living :Through the data gathered on the income and expenditure of the people, the standard of people could be known through per capita income as PCI =NI/population  For sectoral comparison: through the data collected from each sector of the economy, the progress of all the economic sectors can be compared. 

 Economic planning : a nation uses her national income statistics in embarking on both short and long term plans.  To determine the economic situation : it measures the rate and level of economic growth and development or the pattern of performances of an economy over time.

 The National Income is also used in international comparisons. Countries are therefore demarcated into developed, developing and underdeveloped based on their sizes of National Income. This is called inter-temporal comparisons.  It reveals income distribution: this helps the government of the country to know the form of tax to be adopted.

 For future forecast: From the data collected it will be possible to forecast the future rate of economic growth and development.  Useful guide to investors : the data gathered on people‘s expenditure, income and output will put investors in a position to know whether it is worth investing their capital in the country or not. 

Problems of calculating NI  Transfer payments: these are the incomes for work not done. They are items without give- and- take. For instance, scholarships, gifts, donations, pensions etc. They are not included in the estimation of national income to avoid over estimation.  Product identification: since the national income is measured in terms of the monetary value of a final product in a given economy, the concept of final product may be difficult to identify.

What is a final product in a given situation may not be a final product in another situation. To resolve this problem, the value added of each unit of production is measured.

 The problem of double counting: This problem arises when the monetary value of a product is calculated at different times unconsciously and thereby leads to the over estimation of the national income. To resolve this problem, value added of each sector of the economy is obtained using the output approach.

 Price fluctuations : Inflation raises national income while deflation reduces it. The issue here is how to arrive at accurate national income figure that is not affected by either inflation or deflation. To resolve this problem, the real per capita income is obtained through the real national income as money NI  price index

 Inadequate statistics: the problem of incomplete economic activities data is very common in developing countries like Nigeria. This is because often times records are not properly kept, even when they are documented they are not readily available on time

 Problem of depreciation : for the continuity of the economy,provision has to be made for capital consumption as this a problem of estimation but the value varies among the statisticians depending on the method used for obtaining depreciation

 Non marketed products / unpaid services: these are items that are marketable but which are not offered for sale, examples are owner occupied houses, do it yourself job etc  Ignorance and illiteracy: these factors make majority of the people in West Africa not willing to supply basic information that will lead to a successful national income computation.

Assignment With the aid of a diagram, explain the circular flow of income for a two-sector economy.