<<–2/”>a href=”https://exam.pscnotes.com/5653-2/”>p>nuances of NATIONAL INCOME and GDP, comparing them, and addressing common questions.
Introduction
National income and Gross Domestic Product (GDP) are fundamental economic indicators used to measure a country’s economic performance. However, they are not interchangeable. While GDP focuses on the total value of goods and Services produced within a country’s borders, national income considers the income earned by its residents, both domestically and abroad.
Key Differences: National Income vs. GDP
| Feature | National Income (NI) | Gross Domestic Product (GDP) |
|---|---|---|
| Definition | Total income earned by a country’s residents, regardless of where it’s generated. | Total value of goods and services produced within a country’s borders. |
| Focus | Income generation and distribution. | Production and economic activity within geographical boundaries. |
| Calculation | NI = GDP + Net Factor Income from abroad (NFIA) | GDP = C + I + G + (X – M) |
| Components | Wages, profits, rent, interest, and NFIA. | Consumption, Investment, Government Spending, and Net Exports (Exports – Imports). |
| Usefulness | Understanding the standard of living and income distribution. | Assessing the overall size and Growth of the Economy. |
| Limitations | Doesn’t account for non-market activities and income inequality. | Doesn’t reflect income distribution or well-being. |
Advantages and Disadvantages
| Indicator | Advantages | Disadvantages |
|---|---|---|
| National Income | Reflects the actual income available to residents, useful for analyzing living standards and income distribution. | Excludes non-market activities (e.g., housework) and may not capture the informal economy. |
| GDP | Widely used and readily available indicator of economic growth and size. | Doesn’t account for income inequality, Environmental Degradation, or the well-being of citizens. |
Similarities
- Both are used to measure a country’s economic performance.
- Both are calculated on an annual basis.
- Both are influenced by factors like consumption, investment, and government spending.
FAQs
Which is a better indicator of economic well-being: NI or GDP?
There’s no single “better” indicator. NI provides insights into income distribution and living standards, while GDP reflects the overall economic activity within a country. Both should be considered for a comprehensive understanding.Can NI be higher than GDP?
Yes. If a country’s residents earn significant income from abroad, NI can exceed GDP. This is often the case for countries with large overseas investments.Does GDP include the value of Intermediate Goods?
No. GDP only includes the value of Final Goods and services to avoid double-counting.Why is GDP per capita used as a measure of living standards?
GDP per capita (GDP divided by Population) provides a rough estimate of the Average income available to each person in a country.What are the limitations of using GDP as the sole measure of progress?
GDP doesn’t account for factors like income inequality, environmental sustainability, leisure time, and overall well-being. It’s important to consider other indicators alongside GDP for a more holistic assessment of progress.
Let me know if you’d like any of these sections elaborated further!