10 USES OF NATIONAL INCOME DATA

National income statistics are an important conceptual framework used by macroeconomists to assess a country's economic performance.

The following are the uses of national income statistics and data:

1. Measuring economic growth: The rate of economic growth can be calculated by comparing the current national income data with that of previous years.

This economic growth rate, which is derived from national income accounting, can also be used for international comparisons between two countries.

2. Determination of economic contribution of each sector of the economy: National income accounting can be used to determine the contribution of each sector of the economy to GDP and economic growth.

This will help the government in identifying the sectors that are considered the backbone of the economy

3. Economy planning: Policymakers require national income data to draft economic policies for the next year.

Through national income statistics, the government can forecast future economic developments based on current economic performance and plan for them accordingly.

Moreover, the government budget is always based on national income statistics

4. Determine the efficacy of government policies: National income data can be used to assess the efficacy of government policies.

A decline in GDP, for example, could imply that the government is not encouraging investment activity or that its policies are unfavourable.

5. Helps solve economic problems: National income accounting can assist in solving economic problems

Through the national income statistics, the government assesses possible economic problems and devise a way of solving them

6. Standard of living comparison: National income statics allows us to compare the standard of living of people in different countries or the same country at different times.

We can see how a country's standard of living has increased or declined from 2000 to 2022 by looking at national income data.

We can also undertake an international comparison of living standards using national income statistics.

We can learn how the standard of living in Nigeria differs from that in the United States, and how the standard of living in the United States differs from that of the United Kingdom.

Usually, countries with a higher national income such as the US, UK and Japan have a higher standard of living while those with a lower low national income usually had a low standard of living (Nigeria, Cambodia) 

7. Measurement of economic performance: National income accounting provides information about a country's GDP, which effectively serves as a measure of economic performance. 

A declining GDP may suggest a low level of economic activity, whereas a rising GDP may indicate a high level of economic activity

8. Useful for determining changes in consumption pattern: National income accounting, by measuring consumption expenditure, helps in obtaining the consumption pattern of people of a country.

We can determine changes in the spending patterns of people in a country by comparing expenditure data over time, which can assist firms to anticipate changes in consumer demand.

9. Useful for investment decisions: Investors requires national income data to make investment decisions.

Generally, investors prefer to put their money in a country that is growing economically rather than one that is facing a recession.

Investors also analyze national income data to choose which sector of the economy to invest in and how much to invest. 

10. Useful for determining subscriptions: National income accounting is used to determine the number of subscriptions of countries to international bodies such as IMF to which they belong.

The IMF, for example, uses a quota system to determine how much money each country can contribute.

The current quota formula is based on a 50 percent weighted average of GDP, 30 percent openness, 15 percent economic variability and 5 percent international reserves

Voila! We just learned 10 uses of national income accounting. Got questions? Do well to ask me in the comment box.

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