measures of economic growth and living standards Flashcards
how does national income statistics help measure economic growth
allows governments to see if they are meeting their objectives of economic growth, evaluate government policy, to forecast the demand and expected growth going forward. to see if living standards have changed over time
how does GDP show living standard in the economy
measures income, therefore increase in income leads to an increase in living standards
risks of using GDP in living standards
double counting - (primary and secondary sectors both counted)
informal activity - (illegal activity, unregistered businesses, black market)
errors given through data collection -
(huge amounts of info from different sources in a short given time therefore may contain errors)
negative externalities (cost of air pollution, cost of resource degradation and depletion, loss of biodiversity, desertification)
income inequality (distribution of income)
output produced (if mostly capital goods, its not gonna benefit consumers instead business and firms)
other quality of life aspects (health care, education, gender equality, freedom)
risks of using GDP / Capita in rating standards of living
same issues as above ()
factor income abroad and significance of remittances (domestic workers may send money back home which is not accounted for in GDP but increases standards of living)
influence of FDI and repatriation of profit (foreign firms working which increases GDP in the country but not the living standard as the money does not stay in the domestic economy)
how does GNI (per capita) overcome factor income abroad and influences of FDI
GNI is the total income generated by a countries FoP regardless of where the Fop were created.
domestic workers and business will be accounted for in GNI but FDI will not because it is not a domestic FoP
By using GNI remittances are taken into account giving true reflections of living standards especially in developing countries where remittances are very large. also not influenced by FDI
GNI = GDP + net factor income
which is the best measure of living standards
GNI
what is green GDP
measure of economic growth in which it accounts for the environmental cost of production
green GDP = GDP - environmental costs
problems with green GDP
monetary value - putting a value is very subjective and normative therefore is difficult
GDP could fall drastically causing it a political sensitive thing to do
