NATIONAL INCOME AND SOL

Question 1

material well-being

Answer 1

stems from consumption of consumer goods and services

Question 2

non-material well-being

Answer 2

aspects of well-being that stem form intangibles like amt of leisure time

Question 3

what is GDP

Answer 3

value of all final goods and services produced by FOPs located within a country’s geographical boundaries during a given time period

Question 4

what is GNI?

Answer 4

GNI is the final value of goods and services produced by FOPs owned by residents of a country regardless of the geographical boundaries. Residents will earn factor income frm abroad that is counted towards countrys GNiI

Question 5

Nominal vs real gdp

Answer 5

Real refers to the GDP measured at fixed prices so uk a growth in GDP will not be due to increase in prices but increase in production of goods and services

Question 6

GDP vs GDP per capita

Answer 6

Real GDP altho better than nominal, does not take into account the change in population but GDP per capita does.

Question 7

What is the best to compare countrys SOL to?

Answer 7

Real GNI per capita - real because u know that the increase in GDP is a result of an increase of a countries production instead of an increase in price. This reflects the countrys increased ability to meet material needs and wants of the people

per capita to account for changes in population size over time - as long as NI is rising faster than population growth rate, this implies that the average person PP has increased leading to an improvement in material well-being

Question 8

what are some limitations of using real GNI per capita?

Answer 8

1. Data collection problems - mistakes may arise due to problems of omission, double counting and inflation of figures.
2. Presence of underground economy - This is a sector where transactions are not reported either due to illicit activities which aren’t declared due to their illicit nature as well as legal activities which are not declared in income tax returns. Moonlighting (working on the side) or causal jobs (those scared of losing unemployment benefits). Thus, there is an understatement of the country’s national income
3. Changes in the size of non-market economy - home based activities/subsistence agriculture
   4.distribution of national income - since national income per capita measures the average income of residences, this means that it may not be accurate due to income inequality. If the increase in income is concentrated in the hands of the rich then there may not be an increase in SOL for the typical household - use GINI coefficient to combat this
4. change in composition of national income - if NI increases due to rise in production of capital goods, it will not lead to rise in current SOL. if income generated from exports not spent on consumer goods, overstatement of rise in SOL
5. Ignores changes in non-material SOL - negative externalities - 1. state negative externalities stemming from increase in production. 2. describe how ppls non-material SOL decreases cos of it

Decrease in leisure time as they have to work harder or longer hours - loss from reduced leisure would offset gain from producing and consuming greater quality of goods and services

Question 9

limitations of NI in comparing between countries

Answer 9

1. inaccuracy of figures
2. diff in currencies and problems with market exchange rates - fluctuating market rate and does not reflect relative difference in prices across countries. to compensate for relative diff, the purchasing power parity is used where rate of exchange allows one to buy same basket of goods in each country using domestic income
   3.difference in distribution of income
3. difference in proportion of income spent on diff goods e.g. defence vs other consumption goods or investment goods