Measurement of the National Income

Abstract

In Chapter 1 the basic objectives of government economic policy were outlined as low inflation, full employment, growth, and a favourable balance of payments. Whilst these are generally accepted as the obvious policy objectives, it is not so immediately obvious how they are going to be tested. How do we known, for example, that we have full employment, or that economic growth is really taking place? Clearly some basis of measurement is required. The same is true of macroeconomic theories in general. If the theories are dealing with aggregates and how they change, then we must be able to measure these aggregates both to allow us to formulate meaningful theories and to test them against reality. Some of the data that we require is provided by what are called the national income statistics. These record not only the aggregated totals but also the parts that go to make them up. They are a record of what has taken place in the national income over a specified period of time, usually one year. They also tell us how much income flows from one sector of the economy to another, from which we will be able to build up a picture of the circular flow of income.