Measuring National Income Flashcards
1
Q
Problems encountered in measuring national income in real terms and monetary terms.
A
- Errors/omissions: the task of gathering the data is so large that it is inevitable that mistakes and omissions occur.
- Time: it takes a long time to gather all of the information so revisions to provisional figures will be made over time
- Cash economy: some transactions are paid for in cash to avoid paying taxations, and are subsequently not recorded.
- Non-recorded items: eg DIY, housework, caring — these items are either not recorded or will have to have an imputed value.
- Transfer payments: these payments are not linked to the production of goods and services and must be stripped out of national income figures (lottery winnings, benefits, pensions etc).
2
Q
What is National Income ?
A
The value of all goods and services that are produced by an economy in a year
It is also a measure of a country’s economic performance.
3
Q
problems in comparing national income with other countries
A
- Different methods: methods of calculating national income figures may differ from one country to another
- Accuracy of figures: some countries may be more accurate than others in their collection of raw data.
- Currency fluctuations: some currencies may fluctuate wildly over a year making it difficult to make direct comparisons.
- Quality of life: whilst national income provides an indication of wealth it does not measure quality of life.
4
Q
Monetary terms
A
- When national income is expressed in nominal terms (sometimes called monetary terms), this means that its value has been calculated by using the prices of the time, i.e. current prices.
5
Q
Real Terms
A
- Expressing national income in real terms means measuring output as if there had been no inflation, i.e. at constant prices.
- It means that value has been adjusted to remove the inflation element
- So an increase in real national income means that there has been an increase in the quantity of goods and services produced.
