Q 2 Why do we call national income as money income?

National income
National income measures the money value of the flow of output of goods and services produced within an economy over a period of time. The level and rate of growth of national income provide various purposes regarding economy, production, trade, consumption, policy formulation, etc. In order to count a good or service it is necessary to assign some value to it. The value that the measures of national income and output assign to a good or service is its market value the price it fetches when bought or sold. The actual usefulness of a product (its use-value) is not measured assuming the use-value to be any different from its market value.

Measuring national income is crucial for various purposes.

1. Measure the size of the economy and level of countrys economic performance; 2. Trace the trend or the speed of the economic growth in relation to previous year(s) also in other countries; 3. Know the composition and structure of the national income in terms of various sectors and the periodical variations in them. 4. Make projection about the future development trend of the economy. 5. Help government formulate suitable development plans and policies to increase growth rates. 6. Fix various development targets for different sectors of the economy on the basis of the earlier performance. 7. Help business firms in forecasting future demand for their products. 8. Make international comparison of peoples living standards.

There are two concepts of national income 1. GDP (Gross domestic product): This refers to the monetary value of the gross output produced by the nationals of a country in the domestic economy. GDP is measured by taking into account all final expenditures in the economy. These expenditures are classified into following types: Private consumption. Investment Expenditure. Government Purchases of Goods and Services. Net Exports.

2. GNP (Gross National Product): It is defined as the sum total of incomes that accrues to the residents of a country, which is also measured in monetary terms.

Money income
Money income is the one which you are willing to spend (to buys goods etc.). So when we talk of the demand function we are considering the money income of the buyer.

National income is called as money income because: National income is measured in terms of money. It measures only that goods and services, which are exchanged for money. It does not include barter system because in barter system, goods and services are exchanged for another goods and services and it does not consider the money value. National income includes the concept of GDP and GNP. The GDP measures the expenditures in terms of Private consumption, Investment expenditure, Government purchases of goods and services and Net Exports which consider the money value. The GNP is defined as the sum total of incomes that accrues to the residents of a country, which is also measured in monetary terms.