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d) Growth rate of Y and P.C.: Computation of annual national income and its conversion into real or constant price value are very important activities. It serves the purpose in analyzing a variety of economic problems on the national scale. One such use of national income statistics is to make comparisons from year to year. When national income in real terms is compared, we get a clear picture of the conditions of the economy. It is a convenient tool to assess whether an economy is making any progress or not and at what rate it has grown. Such a growth rate (g) of the economy is an indicator of economic prosperity of the country. The growth rate can be computed as follows:
This is a ratio of difference in the real national income value of two subsequent years divided by base year real income. On multiplying this ratio by 100 we get the percentage change in the real national income which is the growth rate of the economy. In our earlier example we have,
The economy can be said to have grown by 20 percent over the two periods Y0 and Y1.
Comparison of national income and computation of real growth rate, though important, is not a satisfactory indicator. It is only an absolute measure and gives an idea about gross improvements in the country’s wealth. However, it does not explain ultimate improvement in the living standards of the population of the country. This is because while computing the growth rate we
have not related it to the size of the population. If over the same period, the size of the population has also increased from say N0 to N1, then the share of each citizen in the national income must have increased only by a smaller proportion. Such a share of every citizen in the national income is called per capita income (PC) which is obtained as ratio of real national income to the population.
Thus over the period Y0 to Y1 per capita income has increased by 5.71 (45.71 - 40). The percentage increase in the P.C. can be stated as:
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