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NATIONAL INCOME ACCOUNTING - Lecture 1

National income statistics are important for Tanzania for several reasons: 1. They reveal the overall economic performance and allow calculation of per capita income and assessment of living standards. 2. They allow analysis of the rate of economic growth by showing if the economy is growing or declining over time. 3. They provide information about the distribution of wealth among different income groups that is important for understanding economic conditions. National income estimates are thus a valuable tool for government planning, budgeting, and evaluating development targets.

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ERICK MLINGWA
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308 views4 pages

NATIONAL INCOME ACCOUNTING - Lecture 1

National income statistics are important for Tanzania for several reasons: 1. They reveal the overall economic performance and allow calculation of per capita income and assessment of living standards. 2. They allow analysis of the rate of economic growth by showing if the economy is growing or declining over time. 3. They provide information about the distribution of wealth among different income groups that is important for understanding economic conditions. National income estimates are thus a valuable tool for government planning, budgeting, and evaluating development targets.

Uploaded by

ERICK MLINGWA
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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National Income- Practical Questions

1. What is the importance of national income estimates to a country like Tanzania?

2. Importance of National Income Computation in Modern Economic Analysis

3. The computation of national income is one of the very important statistics for a country. IT
has several important uses and therefore there is a great need for there regular preparation.
The following are some of the important uses of national income statistics:

4. Level of Economic Welfare

5. The national income estimate reveals the overall performance of the country during a given
financial year. With the help of this statistics the per capita income i.e. the income earned by
every individual is calculated. It is obtained by dividing the total national income by the total
population. With this we come to the level of economic welfare in terms of its standard of
living.

6. Rate of Economic Growth

7. With the help of national income statistics we can know weather the economy is growing or
declining. In simple words it helps us to know the conditions of a country economy. If the
national income is growing over a period of year it means that the economy is growing and if
the national income has reduced as compares to the previous it reveals that the economy is
detraining. Similarly the growing per capita income shows an increasing standard o living of
the people which is a positive sign of a nations growth and vice versa.

8. Distribution of Wealth

9. One of the most important objectives that is achieved after calculating national income is to
check its distribution among different categories of income such as wages, profits, rents and
interest. It helps to understand that how well the income is distributed among the various
factors of the economy and their distribution among the people as well.

10. Ease in Planning

11. Since the national income estimates also contain the figures of saving, consumption and
investment in the economy so it proves to be a valuable guide to economic policy relating to
planning and active government intervention in the economy. The estimates are used as a
data for future planning also.

12. Formation of Budget

13. Budget is an effective tool for planning and control. It is prepared in the light of the
information regarding consumption, saving, and investment which are all provided by the
national income estimates. Further we can asses and evaluate the achievements or otherwise
of the development targets laid down in the plans from the changes in national income and its
various components.

14. Conclusion

15. Thus we may conclude that national income statistics chart the movement of a country from
depression to prosperity its rate of economic growth and its standard of living in comparison
with rest of the worl

16. According to the World Bank report, the value of GNP and GDP were $17.35 and $23.87
billion respectively in 2011 in Tanzania. Give the likely reasons why the value of GDP in
Tanzania is larger than the value of GNP
17. Assess the strength of using National Income statistics as an indicator of standard of living
and as a comparison of economic development between different countries.

18. Given:
Capital Consumption Allowances 50
Compensation to Employees 510
Corporate Profits 50
Exports of Goods and Services 50
Government Purchases 250
Factor Income paid abroad 315
Gross Private Domestic Invest 150
Imports of Goods and Services 75
Indirect Business Taxes 25
Factor income received from abroad 20
Net Interest 100
Personal Consumption Expenditure 350
Proprietors’ Income 30
Rental Income 110
Grants 100
Loan 30

Required
i. Calculate GDPfc using income approach
ii. Calculate GDP fc expenditure approach
iii. Calculate GNP

19. Answer part (i) to (v) on the basis of the following data. Figures are in US$ billions

Personal Taxes 40 Subsidies 10


Social Security Contributions 15 Personal consumption expenditures 255
Indirect business taxes 20 Gross private domestic investment 75
Corporate income taxes 40 Undistributed corporate profits 35
Transfer payments 22 Government purchases 95
Tanzania exports 24 Depreciation 25
Tanzania imports 22 Net foreign factor income earned in TZ 10

(i) GDP (fc) using exp. method (ii) NDP (iii) NI (iv) PI (v) DI

20. Suppose that we have the following income-expenditure model of the economy; so that
National income (Y) = C + I + G+NX , Where
S = -Co+ 0.4(Y + 1.5T) (saving function)
T = 0.2 Y (Lump-Sum Tax)
NX = X - M (net exports)
M = 0.3 Y (imports)
And suppose that I, G and X are exogenous variables (determined outside this model);
(i) Solve for consumption function ( 2.5 marks)
(ii) Solve, algebraically, for Y ( 2.5 marks)- use consumption function
(iii) What is the value of a multiplier? What does it imply? (2.5 marks)

21. In 1970 , the government of Tanzania increased investment spending by 8 billion Tshs.
Given that the marginal propensity to consume (MPC) is 0.75, and assuming further that the
economy was initially in equilibrium at 500 billion Tshs,
i. Determine its effects on the national income equilibrium
ii. Assuming that instead of an increase by 8 billion Tshs, there was a drop in investment
by 8 billion, what will happen to the national income equilibrium?
iii. Why is it important for a government to consider the concept of investment multiplier
when making policy decisions?

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