2.1.4 Uses of national income data

Question 1

Use of real GDP measure?

Answer 1

assess standard of living enjoyed by a country’s population, quality of life

Question 2

main used of national income data? (4)

Answer 2

• to determine econ growth
• estimate likely tax revs
• estimate likely welfare expenditure
• assess inflationary pressure

Question 3

Limitations of national income data? (6)

Answer 3

• distribution of income
• composition of GDP
• Shadow economy
• non-marketed output
• negative externalities
• non-financial factors

Question 4

limitations explained

distribution of income

Answer 4

greater income inequality makes GDP per capita less reliable in measuring living standards as its averaged out

Question 5

limitations explained

composition of GDP

Answer 5

how national income is gernerated matters.
e.g. military expenditure won’t add to living standards but contributed to GDP
more likely to be improved from health or education expenditure

Question 6

limitations explained

shadow economy

Answer 6

income from legal but unrecorded transactions or illegal and unrecorded.
= unrecorded add to living standrds but don’t show up in GDP data, can understate living standards.
e.g. UK estimated 10% worth shadow economy of actual GDP

Question 7

limitations explained

non-marketed output

Answer 7

some goods or services improve living standards but arent included in officla data.
e.g. DIY + childcare can be conducted by fam members for free - add to welfare but don’t show in data.

Question 8

limitations explained

negative externalities

Answer 8

Additions to GDP can generate negative externalities and reduce living
standards.
e.g. Pollution and traffic congestion, even though they arise out of increases in GDP

Question 9

limitations explained

non-financial factors

Answer 9

factors that contribute to quality of life:
* quality of heath provision
* education provision
* leisure time

Question 10

PPP

Purchasing power parity (PPP) definition

Answer 10

the exchange rate that would equalise the price of goods and services in different countries once converted into the same currency.

Question 11

PPP

Why is Purchasing Power Parity (PPP) exchange rate important?

Answer 11

Ensures meaningful international comparisons of living standards by accounting for differences in currency values as curriencies may remain ‘over or undervalued’ for long periods of time - can give misleading info

Question 12

PPP

What problem does volatile exchange rates pose in international comparisons?

Answer 12

make it difficult to accurately convert GDP into a common currency, hindering meaningful comparisons between countries.