Importance of quantifying economic growth

  • Economic indicators portray the “big-picture” of a country or region in regards to the economy. A single indicator or a small set of indicators attempts to give you an idea of the overall economic health of a particular geography.
  • It can help investors assess whether financial markets are in line with economic fundamentals or if there’s a mismatch. This indicates either a run-up in financial markets ahead of fundamentals or markets that are lagging behind. This information can be useful for investors when they’re making investment and asset allocation decisions.
  • Economic growth can be considered among the most crucial indicators that are released. The reason why it’s so important is that it indicates the growth in economic output, whether measured by GDP (gross domestic product), GVA (gross value added), or any other measure.
  • The stage of development of an economy is crucial for comparing two economies. Developed economies have a much slower growth pace YoY (year-over-year) than emerging or developing economies. As a result, comparing the US and China’s economic growth rates won’t be accurate. Instead, comparing the economic growth of countries in the same stage of development—preferably the same geographic region—provides a more comparable picture.
  • Assessing economic output also helps investors understand what drives an economy. For instance, over two-thirds of the US economy depends on consumer spending.

National Income accounting

National income data have the following importance:

  • For the Economy:

National income data are of great importance for the economy of a country. These days the national income data are regarded as accounts of the economy, which are known as social accounts. These refer to net national income and net national expenditure, which ultimately equal each other.

Social accounts tell us how the aggregates of a nation’s income, output and product result from the income of different individuals, products of industries and transactions of international trade. Their main constituents are inter-related and each particular account can be used to verify the correctness of any other account.

  • National Policies:

National income data form the basis of national policies such as employment policy, because these figures enable us to know the direction in which the industrial output, investment and savings, etc. change, and proper measures can be adopted to bring the economy to the right path.

  • Economic Planning:

In the present age of planning, the national data are of great importance. For economic planning, it is essential that the data pertaining to a country’s gross income, output, saving and consumption from different sources should be available. Without these, planning is not possible.

  • Economic Models:

The economists propound short-run as well as long-run economic models or long-run investment models in which the national income data are very widely used.

  • Research:

The national income data are also made use of by the research scholars of economics. They make use of the various data of the country’s input, output, income, saving, consumption, investment, employment, etc., which are obtained from social accounts.

National income data are significant for a country’s per capita income which reflects the economic welfare of the country. The higher the per capita income, the higher the economic welfare of the country.

  • Distribution of Income:

National income statistics enable us to know about the distribution of income in the country. From the data pertaining to wages, rent, interest and profits, we learn of the disparities in the incomes of different sections of the society. Similarly, the regional distribution of income is revealed.

It is only on the basis of these that the government can adopt measures to remove the inequalities in income distribution and to restore regional equilibrium. With a view to removing these personal and regional disequibria, the decisions to levy more taxes and increase public expenditure also rest on national income statistics.