National Income

National income is used as a measure of economic growth. National income figures of a country over a number of years enables us to find out the performance of the economy in terms of the targets set for the growth of the economy. The planners and the policy makers of the country will be able to know whether they have attained success in their efforts to promote growth and if so, to what extent. Expressed in a common currency, the national income helps us to get a comparative picture of the economic growth of different countries. As a result we can know whether a country is underdeveloped or a developed one.

Meaning and Definition of National Income

In real terms, the national income is defined as the flow of goods and services produced in an economy during a particular period of time, usually a year.

In the above definition, national income is considered in real terms. But estimation of national income in real terms is a very difficult task. This is due to the fact that different units of measurement are used for different goods and services. While liquid like petrol, edible oil etc. are measured in terms of litres, foodgrains produced in the country are measured in terms or tons. Similarly, construction of highways is measured in terms of meters. Again no common unit of measurement is used to measure the services of doctors, engineers, professors or the scientists. Since different units of measurement are employed to measure varieties of goods and services produced in the country, their aggregate measurement is very difficult. Money is the common measure of value. Hence it becomes easy to calculate national income by converting the value of all goods and services in terms of money. Viewed from this angle, national income can be defined as “the money measure of net aggregate of all goods and services accruing to the inhabitants of a community during a specific period.”