Question

How national income is important for business decisions?

Answer 1

• The level of economic activity that is taking place in an economy is vitally important because it determines the quantity of goods and services that will be produced in the economy.

• This, in turn, gives an indication of the material well-being of the people of a country. Every year, the Indian economy produces a large number (and a wide variety) of goods and services wheat, tomato, banana, apple, cars, shoes, clothing, buildings, houses, medical services, legal services, banking service, electricity, textbooks, etc.

• The more of these goods and services that the economy produces, the more we will have available for consumption and the better off we will be.
• National income accounts provide information on the pattern of economic activity. These statistics explain various economic and social phenomena. These also help policy-makers in formulating good economic policies both in government and in private industry. This is why national income statistics are closely watched by businesses and governments at all levels.
• Just as a business firm comes to know how it is doing by looking at its accounting figures, national income accounting provides us with useful information about how well the economy is performing. E. M. James defines national income accounting as “the whole process of measuring and recording various economic aggregates which give some indication of the economic health of a country over time.”