Chapter 7 NATIONAL INCOME
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National income in economics refers to the total value of all goods and services produced within a country's borders over a specific period, typically a year. It's a key measure used to gauge the economic performance and overall well-being of a nation. National income can be calculated using various methods, such as the income approach, expenditure approach, or production approach.
Income Approach: This method adds up all the incomes earned by individuals and businesses within the country during the specified period. It includes wages, salaries, profits, rents, and interest.
Expenditure Approach: This approach sums up all the expenditures made on final goods and services produced within the country. It includes consumption expenditure by households, investment expenditure by businesses, government expenditure on goods and services, and net exports (exports minus imports).
Production Approach: This method calculates national income by summing up the value-added at each stage of production. Value-added is the difference between the value of output and the value of intermediate goods and services used in the production process.
National income is an essential measure for policymakers, economists, and businesses as it provides insights into the overall economic activity, standard of living, and income distribution within a country. It helps in formulating economic policies, assessing economic growth, comparing the economic performance of different countries, and understanding income distribution patterns.