Unit 8.5

Question 1

Limitations of statistics (GDP/GNI) in terms of measuring true value output

Answer 1

Non-marketed output is not counted: GDP/GNI statistics exclude the value of goods and services that are not bought or sold in the market, such as unpaid work or volunteer services.

Output sold in underground markets is not considered: Economic activities occurring in the informal or illegal economy, where transactions are outside the legal system and often go unreported, are not included in GDP/GNI calculations.

Quality improvements are not fully acknowledged: Changes in the quality of goods and services over time are not adequately reflected in GDP/GNI measurements. The focus is primarily on the quantity or monetary value of output, rather than recognizing improvements in product features or performance.

The value of negative externalities is disregarded: GDP/GNI figures do not take into account the economic value of negative externalities like pollution or toxic waste. The costs associated with these external effects on society and the environment are not factored in.

Natural resource depletion is not accounted for: The depletion or diminishing availability of natural resources resulting from production processes is not considered in GDP/GNI calculations. The value of these resources and their potential long-term consequences on the environment are not reflected.

Question 2

Why measures of the value of output (GDP/GNI) cannot accurately measure economic wellbeing

Answer 2

They make no distinction abut the composition of output
Whether country produces military goods or merit goods, as one country with lower gdp capita might have higher levels of provisiion of social services and merit goods than the other countries. Which has higher standard of living?

They cannot reflect achievements in levels of education, health and life expectancy
Levels of health and education contribute significantly to standards of living, but are not account for. Life expectancy is also important due to improvement in tech improvements, improvement in health which is not account for in GPD/GNI

They provide no information on the distribution of income and output
How equally or unequally income and output are distributed is another factor underlying society’s wellbeing. So benefits of a growing GDP could only benefit a small group of beneficiaries, or are they widely distributed? GDP or GNI per capita do not tell.

They do not take into account increased leisure
The decrease in number hours worked causes increase in hours of leisure increasing. This contributes to society’s standar of living which isn’t included in GPD or GNI

They do not take into account for quality of life factors
E.g crime rate, political freedom is not taken into account GDP or GNI

Question 3

What are the two uses of GDP/GNI?

Answer 3

1. Measuring economic performance over time.
2. Comparing economic performance across countries.

Question 4

What are alternatives of measuring econ wellbeing

Answer 4

1. OECD Better Life Index (health, security, capital).
2. Happiness Index (social support, life expectancy, corruption)
3. Happy Planet Index (life expectancy, inequality, ecological footprint).
4. HDI

Question 5

Why are national income statistics gathered?

Answer 5

Judge whether government has been successful in achieving economic growth
- Helps develop policies
- Helps develop models and forecast about future
- Businesses use them to make forecasts about demand
- Analysis of economy’s performance
- Used as a basis to evaluate quality of life
- Used to compare with different countries

Question 6

HDI Advantages

Answer 6

Talks about Life expectancy, knowledge (adult literacy) and standard of living (gdp per capita)

Broad- includes GPD/capita

Focus on development outcomes

Allows for progress to be measured over time (look at it over the years to compare)

Attention focus on those with low HDI– AID (allocating ressources to low income country)

Question 7

HDI disadvantages

Answer 7

Hard to break down the thing in 3 (e.g. might not know that life expectancy dominates)

Hard to allocate ressources (dont know where in the three things dominate)

Other factors- crime corruption, poverty, negative externalities not included

Question 8

OECD better life index

Answer 8

Two groups of factors that determine wellbeing; quality of life which is measured in eight indicators and material conditions which are measured in 3. Those depend on four types of capital in the future, natural, economic, human and social. These four types of capital ensure that there will be sufficient resources in the future for a society to be able to maintain the wellbeing of its popualtion

Question 9

Happiness index

Answer 9

Along with the Human Development Index, the United Nations has also developed the World Happiness Report is based on a survey of how people rate their own lives. The survey ranks national happiness using a survey that asks a sample of respondents to think of their happiness as a ‘ladder’, with the highest life rating being a 10 and the lowest life rating being a zero. The individuals who are part of the survey have to consider factors such as citizen engagement, communications, technology, education, health, emotion and diversity, etc when they are making their judgement about happiness. The responses of a sample of individuals within a country are then aggregated to form the index.

and it also includes real gdp per capita as an addition

Question 10

Happy Planet Index

Answer 10

(life expectancy x wellbeing x inequality of outcomes)/ecological footprint

wellbeing=measured by data collected by gallup world poll

inequality of outcomes= refers to inequality between life expectancy and wellbeing which are adjusted downards to take into accoutn inequalities in these dimentions

Ecological footprint: measured by amoutn of land needed to absorb co2 and meet requirements. higher the co footprint the lower the HPI.

measured from 0-100.