4.2.1 — Measurement Of Macroeconomic Performance

Question 1

In what 2 ways can national income be measured?

Answer 1

1. Gross National Product (GNP);
   Market value of all products produced per annum of one country, it includes GDP + income earned from overseas assets minus income earned by overseas residents
2. Gross National Income (GNI);
   Sun of value added by all producers who reside in a nation plus product taxes not included in the value of output, plus receipts of primary income from abroad

Question 2

What are some limitations of using GDP to measure living standards?

Answer 2

• GDP doesn’t give an indication of the distribution of income — may lead to different living standards
• GDP may need to be recalculated in terms of purchasing power
• large black economies which are not accounted for in GDP
• GDP gives no indication of welfare

Question 3

What does PPP stand for and what is it?

Answer 3

Purchasing Power Parity:
A theory that estimates how much the exchange rate needs adjusting so that an exchange between countries is equivalent according to each countries purchasing power
> helps to minimise misleading comparisons between countries