4. Measuring Macroeconomic Performance - National Income Data Flashcards
What are the limitations of GDP as a means of measuring living standards over time?
- GDP is inaccurate as goods and services that aren’t sold in the market place have to have their values estimated2. GDP doesn’t include the shadow economy & unpaid workers and volunteers3. GDP includes positive and negative activities in an economy 4. Some things that contribute to GDP don’t improve living standards - e.g. Defence Spending
What alternatives are there to GDP to measure living standards?
- GDP/capita - flawed due to inequality etc2. Human Development Index (HDI)3. Misery Index4. UNs Multidimensional Poverty Index
What is HDI and where do the UK rank using it?
HDI is an annually published statistic used to measure standards of living - it uses life expectancy, education and later incomes to form conclusions. In 2016, the UK were 16th on this ranking.
What is the Misery Index and where do the UK rank using it?
A measure of economic well-being for a specified economy, computed by taking the sum of the unemployment rate and the inflation rate for a given period. Increasing index = worsening economic climate. In 2016, the UK were 34th on this ranking.
What is the UNs Multidimensional Poverty Index and where do the UK rank using it?
MPI is a measure of poverty in households - a person is multi-dimensionally poor if the weighted indicators in which he or she is deprived add up to at least 33% - it uses 10 indicators including; education, mortality, access to water etc. There are no official international rankings for this.
How can GDP be used to compare living standards internationally?
To compare GDP internationally we use purchasing power parity - this essentially tells us the purchasing power of each currency - a basket of goods is used to calculate PPP - how much does it cost the same basket of items in different currencies - all currencies must then be converted in to $ for comparisons so the ERs will sway the results.
