payments. “Capital sector” refers to saving and investment activities. It includes the transactions of banks, insurance corporations, financial houses, and other agencies of the money market. These are not included under “Firms”.
These agencies merely provide financial assistance to the firms’ activities. While assessing sectoral contribution to GDP, the economy is divided into three namely Primary, Secondary and Tertiary sectors. - - National Income . .
National Income and Welfare National Income is considered as an indicator of the economic wellbeing of a country. The economic progress of countries is measured in terms of their GDP per capita and their annual growth rate. A country with a higher per capita income is supposed to enjoy greater economic welfare with a higher standard of living. But the rise in GDP or per capita income need not always promote economic welfare.
The per capita income as an index of economic welfare suffers from limitations which are stated below: . The economic welfare depends upon the composition of goods and services provided. Incase of greater proportion of capital goods over consumer goods, the improvement in economic welfare will be lesser. Similarly the production of luxuries is meant for rich classes only.
. Higher GDP with greater environmental hazards such as air, water and soil pollution will be of little economic welfare. . The production of war goods will show the increase in national output but not welfare.
. An increase in per capita income may be due to employment of women and children or forcing workers to work for long hours. But it will not promote economic welfare. Therefore the Physical Quality of Life Index (PQLI) is considered a better indicator of economic welfare.
It includes standard of living, life expectancy at birth and literacy. . . National Income & Erosion of national Wealth For achieving higher GDP, larger natural resources are being depleted or damaged.
This means reduction of potential for future growth. Hence, it is suggested that while assessing national income, loss of natural resources should be subtracted from national income. . .
National income in terms of US$ When