standards of living and problems of using GDP stats to make comparisons Flashcards
What is the shadow economy?
Economic activity that is deliberately hidden from official transactions
It includes unpaid work and illegal activities, often to evade taxes.
What percentage of GDP does the shadow economy constitute in the UK?
Approximately 10 percent
This varies by country, with Nordic countries at about 14 percent and southern European countries at 20-30 percent.
How many people were estimated to be performing shadow work in the EU at the end of the twentieth century?
Up to 30 million
In the OECD, this number was up to 48 million.
In which sector is it common for half the workforce to operate in the shadow economy?
Construction
This often occurs in addition to formal employment.
What effect does the shadow economy have on official national income statistics?
They can be misleading
Because the shadow economy constitutes a high proportion of national income.
What does real GDP per capita adjusted for purchasing power parity indicate?
The amount of goods and services available per head
It accounts for inflation, population, and cost of living.
Name one problem with using GDP for making international comparisons.
Some output is unrecorded in all countries
This includes non-marketed output and the hidden economy.
True or False: Production is the same as consumption.
False
Production does not necessarily reflect actual consumption levels.
What external costs of production does GDP ignore?
Environmental impacts and social costs
This can lead to an inflated view of economic performance.
What does GDP per head fail to measure?
Income distribution and inequality
It does not account for the range of incomes within a population.
What is one definition of standard of living?
The amount of goods and services that households have access to
It can also include financial health and material welfare.
What is the baseline measure for a nation’s standard of living?
Real GDP per capita adjusted for purchasing power parity
This provides a more accurate reflection of living standards.
List two reasons why a rise in national income is likely to mean a rise in living standards.
- Households can afford more goods and services
- Governments can provide more public services like education and health care
List two reasons why a rise in national income may not improve living standards.
- A rise in income inequality
- A rise in pollution and environmental deterioration
