National Income (Y)

Definition= Is the total money value of goods and services produced in a given time by factors in the ownership of that country

National Income=National Output=National Expenditure (most reliable)

Therefore it can be calculated in three ways which are defined to be equal. Residual errors are added to the output and income measures to equate them to the expenditure, an average can often be taken.

Circular flow of income model:



National income statistics are used mainly as a measure of economic welfare but are also a useful source of information on different sectors of the economy.

Problems when using National Income statistics:

1. When giving changes in the value of money use real values rather than nominal values (GDP deflator rather than RPI is used)
2. When comparing living standards use per capita rather than total national income figures
3. Two countries with the same per capita national income, may differ considerably in living standards if income distribution is different
4. The composition of national income will affect living standards (e.g. consumption v investment)
5. Statistics are often unreliable (Black markets in the UK)
6. National income statistics exclude households (the non-market sector) which varies in size over time and between countries (e.g Kenya, has a very large non-market sector, this is misleading in living standards nominally)
7. International comparisons are complicated due to different currencies and using the current exchange rates (meaning that it is determined by trade and investment flow)
8. National income statistics are only an imperfect guide to living standards