It is not
easy to measure the NI because a number of factors are involved in NI. There
are a lot of problems which are faced in measuring the NI. Some of these are as
follow;
1) Illegal Activities: The activities which are not transacted in the market are called illegal
activities. And due to lake of data we are unable to know about the amount
which are received from those activities. And due to this reason we can not
calculate NI correctly.
2) Calculation Of Depreciation: As we know that, we can not estimate the exact useful life
of any asset and therefore we are unable to calculate the depreciation
allowance on any assets. And thus we can not calculate NI correctly.
3) Danger Of Double Counting: While measuring NI, there is always the chance of double
counting which will be the cause of overestimation of NI.
4) Changes In Price Level: While measuring NI goods and services are measured in term
of money. And the value of money is always change so, therefore NI will change
on the fix level of output due to change in price level of output.
5) Unpaid Services: During the calculation of NI only those services are included which are
to be paid. For example; the services of professor, doctors, land, labor,
capital etc. And this service for which the payment is not made are excluded
from NI. And it is very difficult to differentiate the payment and unpaid
services.
6) Foreign Income:
In the calculation of NI only foreign balance of income are taken and if we
lake all the services from which the foreign income is to be received then the
calculation of NI will become very difficult due to lake of correct
information.
7) Self Consumption Of Output: In developed countries a large part of output is not
exchange in market for money. It is either consumed directly by the producers
or bartered. This non monetized and unorganized part of output makes the
calculation of NI difficult.
Ø Difficulties In Measuring NI In Under Developed Countries: In under developed countries. There
are other difficulties which arise in measuring NI are given below;
1) Lack Of Information: Data is not available because the proper accounts are not mentioned by
the stat mention within under developed countries like Pakistan. And due to this
reason NI can not calculated correctly.
2) High Rate Of Illiteracy: Due to high rate of illiteracy most producers have no idea
of quantity and value of their output and they do not provide correct
information regarding their activities.
3) Self Consumed-Barbered Consumption: Some of the transaction of agriculture goods in the
village are done with out the use of money and it is difficult for statistican
to measure the exact amount of such transactions.
The NI circulates in an economy: We know from the product approach and
income approach that money value of all final goods and services and the
aggregate annual income of all factors of production in a country during in a
year are equal. That is why they are able to buy the goods and services by
spending their income through out the year. Thus people of a country in
aggregate sense are by themselves producers as well as consumers of the
national product. This means that economy of a country can be divided into two
sectors.
a) Firms/production sector where goods
and services are produced.
b) Households/consumption sector where
goods and services are consumed by spending rewards/income of factors of
production.
Through the
year NI flows from firms to households and back to firms in a circular way
which is called circular flow of NI. The people in the country goes to firms as
factors of production through out the year. They render their productive
services as a result goods and services are produced. In return they get
rewards income in the form of rent, interest, wages and profits. They spend
their income on the goods and services produced by the firms and get them for
consumption. In this way money value of all goods and services produced in a
country in a year becomes equal to the money income spent by the people on
these goods and services.
The circular flow of NI indicates
that there exists a flow of money in a country or in the economy. First of all
money flows from firms to households as rewards the factors of production.
Later on it flows from households back to firms in the form of prices of goods
and services purchased by households. In this way, either aggregate of the
rewards to households is NI or the total price of goods and services received
by firms is NI. Thus NI circulated either way keeps on flowing in the form of
money from firms to households and back to firms.
Ø The Importance Of NI: The study of NI is highly important from the economic development point
of view of a country.
·
Provide Information: The concept of NI estimates or
provides detailed information about various sectors of the economy like
agriculture industry and trade etc.
·
To Know About Economic Growth: The NI statistic contains the
figures of consumption, savings and investment of any country and information
about saving and investment is indispensable for this growth of any economy. It
is the rate of saving and investment which determine the rate of economic
growth of any country.
·
To Know About Economic Problems: With the help of NI statistic
government becomes able to know about various economic problems like
unemployment, inflation, illiteracy and over population etc.
·
To Formulate Policies Plans: After knowing about various economic
problems government formulates various economic policies like fiscal policy,
monatory policy to solve these problems.
·
To Know About The Living Standard: The concept of NI estimates provide
the help to compare the living standard of people of different countries and
economic welfare of the people living in these countries.
·
To Find The Target Of Production: NI helps to find the target of
production currently achieved by the four factors of production. And by the
concept of NI the target of production in future can be determined by all
sectors of economy.
·
To Reduce Unequal Distribution Of
Wealth: To calculate
of NI by income method through light on the earning of various factors of
production and the total of output of a country. And this helps to reduce the
unequal distribution of wealth.
·
To Provide Help In Control Of
Inflation: The NI
provide the help to government to control the problem of inflation and
deflation.
·
To Provide Help To The Political
Parties: With the
help of NI the political parties and other people of the country are able to
know about the basic problems of the society.
·
To Estimate The Purchasing Power: The importance of GNP or NI can also
be judged from the fact that it throws light on the purchasing power of the
people, their power to save and the ability to pay tax to the government.
·
Provide Help To Finance Minister: NI estimates also provide help to
finance minister of a country to prepare budget of a country and with the help
of NI he imposes various types of taxes and excise duties.
·
Give An Idea About The Structure Of
Economy: The NI
indicates the shares of various sectors to the economy. If the shares of
particular sector is less so the steps can be taken to increase the efficiency
of that sector. Thus NI gives a clear idea the structure of economy.