Evaluating national income stats

Question 1

Why national income statistics (GDP/GNI) do not accurately measure the ‘true’ value of
output

Answer 1

• GDP and GNI do not include non-marketed output
• GDP measures value of goods and services
  that are traded in the marketplace and that generate incomes for the FOP but some output of goods and services is not sold in the market and does not generate any income; ‘non-marketed output’.
• GDP and GNI do not include output sold in underground (parallel) markets.
• goods are traded in markets and do generate incomes, but they go unrecorded and therefore are not included in GDP/GNI (icnome not reported to avoid paying tax/illegal transactions)
• GDP and GNI and differing domestic price levels.
• international comparisons of GDP do not account for
  differing price levels across countries, we get a highly misleading picture of standards of living in
  different countries.

Question 2

Why measures of the value of output (GDP/GNI) cannot accurately measure standards of
living

Answer 2

• GDP and GNI make no distinctions about the composition of output - merit/demerit goods made? which is better for SOL?
• GDP and GNI cannot reflect achievements in levels of education, health and life expectancy.
• GDP and GNI do not take into account increased leisure
  + average number of hours worked per week has declined significantly, with the number of hours of leisure correspondingly increasing. This contributes to society’s standard of living, yet is not
  accounted for in GDP or GNI.
• GDP and GNI do not account for quality of life factors (e.g crime rate, stress in workplace, sense of security)
• GDP and GNI do not account for the value of negative externalities, such as pollution, toxic wastes and other undesirable by-products of production (reduces social wellbeing)
• GDP and GNI do not take into account the depletion of natural resources
• GDP and GNI do not take into account quality improvements in goods and services. T