Economic Growth Flashcards
what does national income measure and how is it measured?
- the size of an economy
- gross domestic product (GDP)
what is GDP measured at and so what does that mean?
measured at market prices, which means it is a measure of national income that includes the value of indirect taxes (VAT)
what are other measures of national income, besides gross domestic product
- gross value added (GVA)
- gross national product (GNP) and gross national income (GNI)
what 4 things make national income statistics inaccurate
- statistical inaccuracies
- the hidden economy
- home produced services
- the public sector
how do statistical inaccuracies make national income statistics inaccurate
NI statistics are calculated from millions of different returns to the government; mistakes will be made and so returns are inaccurate or simply not completed
how does the hidden economy make national income statistics inaccurate
taxes (e.g. VAT, income tax)and NI contributions and government regulations (health and safety laws) impose a burden on workers and businesses and so are tempted to evade taxes. E.g. building industry, self-employed, can evade taxes - work in hidden economy. Size of hidden economy is difficult to estimate, NI statistics underestimate the true size of national income
how do home produced services make national income statistics inaccurate
not accounting for
e. g. in developing countries GDP is very low, so low people wouldn’t be able to survive, mainly agriculture a lot of which isn’t traded and so not accounted for, people consumer what they produce, in reality value of national output is much higher
e. g. UK, DIY jobs aren’t accounted for, more DIY the greater the under-recording of national output by national income statistics
how does the public sector make national income statistics inaccurate
valuing lots of the output using the public sector is difficult as nothing is bought or sold - tried to overcome this by valuing non-marketed output at its cost of production which can have surprising results.
e.g. hospital has more efficient staffing, cut two members of staff, service improves, national income drops though as less people being paid but output remains unchanged
what are some of the problems of comparing NI through time
- prices change
- accuracy and presentation of statistics
- changes in population
- income distribution
how do prices make it difficult to compare NI through time
prices tend to increase over time, so an increase in NI over time may not indicate an increase in number of goods and services produced in the economy, only if increase in NI in money terms is greater than increase in prices can it be said to be an increase in output
how does the accuracy and presentation of statistics make it difficult to compare the NI through time
NI statistics are inaccurate and so it’s impossible to give a precise figure for change in income over time.
Also change in income over time can be affected by inflation rate - inevitable errors come with calculating inflation, inaccurate.
how do changes in population make it difficult to compare the NI through time
NI statistics are often used to compare living standards over time, to be used in this way they must compare NI per capita
e.g. if population doubles whilst NI quadruples, people are likely to be twice as well off rather than 4 tines
how does income distribution make it difficult to compare the NI through time
when comparing NI through time it’s important to remember that an increase NI for the whole economy may not mean individuals have seen their income rise, income distribution is likely to change over time, may or may not lead to a better circumstance
