Economics Assessment - Assignment Example

Development of national accounts was necessary to provide detailed information that can be used by economists to rate the performance of the economy and to predict future growth. Macroeconomics depicts the interrelationship of various sectors of the economy with significant effect on each other in case of decline or improvement in one sector. Macroeconomics generally shows the connection between national income accounting and gross domestic products with mainly depends on savings and investment for long-term economic growth.

Financial markets are what characterize savings and investment that determine growth in gross domestic product and living standards of the people in that particular country (Mankiw 581). National accounts enable a country to lay down strategic plans for her economic progress in the future and on the other hand international development institutions grant loans to developing countries to facilitate their development strategies based on the national accounts of the country. Approaches of Measuring National Income National income is measured through a combination of output, spending and income approximations that have been generated over a given time period.

The total value of goods and services produced, total expenditure by individuals and corporations in the economy with a combination of total income generated during production of goods and services during a particular year sums up the total national income. Gross domestic product measures value output produced although three approaches can be used provided the national output equals national expenditure and income. The methods used in calculating gross domestic product include expenditure method that sums up the total spending used on produced goods and services at current market prices.

The spending includes exports and imports on goods and services, household, government and capital investments spending. The income methods can also be used by summation of profits of private sector, income of citizens, and land rent income. In general, it’s the total income earned through production of goods and services in the economy. The income excludes private transfer of money, income not registered by customs and excise authority and transfer payment. Alternatively, gross domestic product may be arrived at through output method using value added concept.

The totals are arrived at by adding together the output value produced in each sector of the economy that is considered productive. Valuation applies the use of increase in product value at each successive stage during the process of production and it is referred to as value added approach, which is applied to avoid double counting intermediate goods value (Dwivedi 61). National incomes that Adopt International Standards Countries compile their national accounts using international standards such as SNA and ESA; however, there are difficulties in comparing national income of different countries.

Difficulties remain in comparing national income internationally due to differences in income distribution such as the varying size of black markets, which directly affects the level of income from goods and services. Government spending on defense also varies from one country to another thus posing difficulty in comparing national incomes concerning spending. Countries with significantly varying number of population are incomparable when using the income approach in