Ch202 - N ATIONAL I NCOME AND R ELATED A GGREGATES : B ASIC...

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Unformatted text preview: N ATIONAL I NCOME AND R ELATED A GGREGATES : B ASIC C ONCEPTS AND M EASUREMENT UNIT-I I + + 1 An accounting period or a financial year often does not coincide with a calendar year. Ordinarily, a financial year refers to, for example, April 1, 2004 to March 31, 2005. Macroeconomics, as pointed out earlier, deals with the study of aggregates expressed in terms of aggregate income, output, employment, expenditure, exports and imports and so on. In order to determine the actual performance level of the economy, we need to follow a framework of measurement procedures to find these aggregates and eventually we must interpret the macroeconomic behaviour in terms of movements in these aggregate measures. National income accounting facilitates the measurement of macro aggregates for a given economy. Accounting is believed to be a necessary exercise for any economic unit to know its performance. An individual unit such as a Household or a Firm maintains its own accounting information since it is interested to know its financial position at the end of an accounting period. 1 Important decisions concerning savings, S TRUCTURE OF THE M ACRO E CONOMY : C IRCULAR FLOW OF N ATIONAL I NCOME C HAPTER 2 + + + + investment and tax payments are all made by the unit after an analysis of the accounting information available to it. At the macro level, accounting assumes an even greater significance as the information is used for a review of the economy’s performance during the year under study. On the basis of this appraisal national governments have to formulate their policy programmes to maximize the welfare of people. This is the basic purpose of national income accounting as it renders possible a set of procedures for measurement of income and output at the aggregate level. This means that we are, in fact, measuring the macroeconomic activities in the economy for a particular year. Accounting for transactions by individual units is relatively a less complicated and a simple process as compared to macro economic accounting of aggregate output and I NTRODUCTORY M ACROECONOMICS 8 income for the economy as a whole. It is a rather difficult and complex procedure to quantify the macro variables for accounting purpose. It is not adequate to merely look at the macroeconomic aggregates but it is also equally important to learn the techniques of measuring these aggregates. Therefore, national income accounting has evolved as a branch of study in its own right. Primarily, there are two basic functions of national income accounting: the first , is to identify specific economic achievements of a country and the second , is to provide an objective basis of evaluation and review of policies under implementation. Hence, national income accounts data not only help us to measure macroeconomic aggregates but also enable us to understand, analyse and interpret the working of the economy as well. This is precisely the reason why the road map to the subject of macroeconomics begin with a study...
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This note was uploaded on 04/20/2010 for the course CEDT 601 taught by Professor Ypr during the Spring '00 term at Indian Institute of Technology, Kharagpur.

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Ch202 - N ATIONAL I NCOME AND R ELATED A GGREGATES : B ASIC...

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