using national income data Flashcards
what does the national income indicate?
National income gives an indication of the economic performance of a country
Nominal and real GDP are often used to measure national income
A fall in national income may indicate the economy is going into a recession
A rise in national income indicates the economy is experiencing economic growth
what is gross national income ?
Gross national income (GNI) is another measure of national income
It represents the total income earned by a country’s residents, both domestically and abroad
what does the GNI include ? (Gross national income )
GNI includes the following components
GDP and Net income from abroad
Net income from abroad accounts for income earned by residents of a country from their investments or employment in foreign countries, minus income earned by foreign residents within the country
how can GNI be calculated ?
two ways;
Using GDP data plus net income from abroad
GNI = GDP + (net income from abroad)
Using income data from the factors of production plus net income from abroad
GNI = ( wages + interest + rent + profit) + (not income from abroad )
how can national income date be useful to access changes in living standards?
compares changes living standards across time - Typically, a rising GNI per capita indicates an improvement in average income, leading to an overall improvement in the standard of living for the population
evaluates effectiveness of economic policy - Monitoring GNI per capita is beneficial in assessing how effective a policy has been in enhancing economic well-being
It also assists the government in formulating economic policy to improve standard of living in the future
compares data across countries - National income statistics are useful for making comparisons between countries
They allow judgments to be made about the relative wealth and standard of living within each country
They allow comparisons to be made over the same or different time periods
what are the limitations of using gDP for comparisons ?
lack of information provided on inequality - The distribution of income in an economy is provided as an average (GDP/capita)
The differences in the standard of living within the same country can be significant
quality of goods and services - GDP provides no information on the increase or decrease in the quality of goods or services over time
If quality worsens but prices are lower, then the standard of living is judged to have increased
The poor quality may actually have decreased the standard of living
Does not include unpaid or voluntary work - If it included voluntary or unpaid work, then GDP/capita would be higher
differences in hours worked - GDP data does not capture the amount of time taken to produce the GDP/capita
environmental factors - GDP does not capture the environmental and health impacts of generating income within a country (externalities)
why may using GDP per capita not be accurate?
Using GDP per capita to compare living standards may not be accurate because currency values are different
what does the purchasing power parity do ?
adjusts exchange rates based on the price levels of a standard set of goods and services in different countries, aiming to account for differences in the cost of living
PPP is conversion factor that can be applied to GDP, GNI and GNP
what does purchasing power parity calculate ?
It calculates the relative purchasing power of different currencies
It shows the number of units of a country’s currency that are required to buy a product in the local economy, as $1 would buy of the same product in the USA
