National Income Accounting

Reviewed by Bhavana | Updated on Sep 28, 2020

Introduction

National income accounting is a method of bookkeeping that a government uses to calculate the amount of economic activity over a given period of time. Accounting reports of this type provide data on total profits received by domestic corporations, salaries paid to foreign and domestic employees, and the amount expended on businesses and persons living in the country on sales and income taxes.

Even though national income accounting is not accurate science, it offers valuable insight into how well an economy functions, and where the money is produced and spent. Information on per capita income and development may be analysed over a period of time when paired with statistics about the corresponding population.

Usage of National Income Accounting

Information gathered through national income accounting can be used for a variety of purposes, such as the assessment of the current standard of living or the distribution of income within a population. In addition, national income accounting provides a method for comparing activities in different sectors of the economy, as well as changes in those sectors over time. A thorough analysis can help determine the overall economic stability of a nation.

Inaccuracies Around National Income Accounting

The accuracy of the analysis relating to national income accounting is as accurate as the data collected. Failure to provide data in a timely manner may make it useless in terms of policy analysis and creation.

In addition, some data points, such as the impact of the underground economy and illegal production, are not being reviewed. This means that the activities are not reflected in the analysis, even if their impact on the economy is strong.

As a result, some national accounts, such as GDP or the CPI inflation index, have been criticised for failing to accurately capture the real economic condition of the economy.

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