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The Uses of National Income Data
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The Uses of National Income Data

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Uses and problems of GDP as a measure including alternatives to GDP as a measure of economic performance

Uses and problems of GDP as a measure including alternatives to GDP as a measure of economic performance

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  • 1. Aquinas College Economics DepartmentUses of National Income DataProblems and Other Methods ofMeasuring an EconomyECON4
  • 2. Aquinas College Economics Department3 Abbreviations you need to knowGDP: Gross Domestic Product – All output produced fromresources in a countryGNP: Gross National Product – Output produced within acountry plus net property incomes from abroadNI: National Income – Output produced within a countryplus net property income minus depreciation on assets
  • 3. Aquinas College Economics DepartmentProblems with GDP as a MeasureOnly economic activity that has amonetary value is included so nonmonetised sector is automaticallyexcluded such as stay homeparentsThe Shadow Economy stilloperates without inclusion in GDPfigures as it is undeclared to taxauthorities – Black market trades1. GDP doesnt measure all economic activity
  • 4. Aquinas College Economics DepartmentProblems with GDP as a MeasureImprovements in a products qualityis not picked up by GDP figures andthis can have a significant impacton living standardsGains in welfare as thereforeunderstated2. GDP doesnt measure improvements in quality
  • 5. Aquinas College Economics DepartmentProblems with GDP as a MeasureWhilst GDP per capita (per person)can increase it does not mean thatthe incomes of all the populationhave increased togetherSome sectors of the populationhave not benefited as much asothers3. Distribution of Income
  • 6. Aquinas College Economics DepartmentProblems with GDP as a MeasurePeople’s living standards need tohave leisure time includedA continued rise in GDP resultingfrom increased economic activitycan have a detrimental effect onsociety4. No accounting for leisure time
  • 7. Aquinas College Economics DepartmentProblems with GDP as a MeasureContinued economic growth canlead to significant negativeexternalities such as increasedpollution or the erosion of nonrenewable materialsThis is not featured in GDP figures5. No mention of negative externalities
  • 8. Aquinas College Economics DepartmentProblems with GDP as a MeasureNo all spending on an economy isincreasing the living standards inan economy.Increased spending on defence orinternational organisationmembership fees6. Allocation of resources is not accounted for
  • 9. Aquinas College Economics DepartmentProblems with GDP as a MeasureGDP is difficult to compare like forlike between countries Each country may collect figuresdifferently Lack of international consensuson accounting methods andclassifications7. Relative comparisons
  • 10. Aquinas College Economics DepartmentPurchasing Power ParityExchange rates that take into account how atypical collection of goods costs compared toanother country
  • 11. Aquinas College Economics DepartmentAlternatives to GDP as a measurementCalculated to give an average from threeindicators1. Life Expectancy2. Education Index3. GDP Per Capita IndexMaximum on the scale is 11. Human Development Index (HDI)UK is 0.875[2013 HDI]
  • 12. Aquinas College Economics DepartmentAlternatives to GDP as a measurementPlaces importance on four key areas1. Life Expectancy2. Education3. Economic Provision4. Social InclusionThe Lower the Better2. Human Poverty IndexUK is 14.8[2012 HPI]
  • 13. Aquinas College Economics DepartmentAS Level Revision Site (ECON1, ECON2)• http://www.aquinaseconomicsas.co.ukA2 Level Revision Site (ECON3, ECON4)• http://www.aquinaseconomicsa2.co.ukAquinas Economics on Twitter• http://www.twitter.com/aquinaseconomicUseful Links