• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

How reliable are National income statistics as a means of comparing living standards between countries?

Extracts from this document...


Q. How reliable are NY statistics as a means of comparing living standards between countries? [A Level 2003 Paper 3] Ans. National income statistics include Gross Domestic Product per capita as an indicator of the average living standards of the individual in a country. Gross domestic Product is the value of total goods and services produced in an economy over a period of time. When this value is divided by the total population, GDP per capita is obtained. However, the foremost problem of calculation of GDP is faced with is the problem of price fluctuations over time. Hence the money value of GDP or the nominal value of GDP must be adjusted with the changes in price level to arrive at the real GDP i.e. GDP at constant prices. A third statistic can be imputed to illustrate how much of the GDP is reliant on the changes of price. This statistic is called the GDP deflater given by: GDP at current prices (assume year 2003) *100 GDP at base-period price (assume year 1990) This would give the real GDP change that occurred since the base-period when economic conditions were stabile. The real GDP is then divided by the total population to arrive at the real capita that gives a more accurate measure of the income per person in country. The process of calculations of Gross Domestic Product itself encounters problems. ...read more.


The value of exports must be added while imported finished goods and raw materials should be deducted. Adjustment to measurements of GDP may enable national statistics to be more reliable. However output values also include the incomes that flow out of the country and incomes that flow into the country. Hence Gross National Product is another statistic that sometimes replaces GDP as the norm of calculating national income. This is because GNP takes into account the income the permanent residents of the country earn irrespective of their geographical location. Another improvement to measurement of national income is Net National Product that is found by deducing depreciation or capital consumption of the economy from the GNP value. Over time though GDP or the other measures prove to be unreliable due to some factors which the GDP value cannot reflect. For example leisure activities are an important aspect for higher standards of living but GDP does not include this. However the extent of leisure as a component of living standard can vary between countries. For example Japan has a higher GDP per capita and the people have longer hours of working so lesser leisure time but they do not consider this as a field in their standards of living. However an average person in UK would consider less leisure time in favour of long working hours as a fall in his living standards. ...read more.


Therefore living standard cannot be compared. Externalities such as pollution affect living standards but pollution can neither be given an absolute value nor can it be given in a discrete way. It is hard to figure to what extent economics are affected by pollution and hence the people's are living standards cannot be entirely given. Social indicators are also important in measuring standard of living. Crime rates, social protection and security, human rights, political stability, religious tolerance are important factors in measuring living standards. Income per person may be high or moderate in a country but unless these features are not present on average person is barely better-off. Foreigners' status in different countries is important and must be accounted for to estimate living standards. For example, in France it is illegal to carry out statistics on the ways of living of foreign immigrants. Therefore the statistics on living standards become weak as the real condition and of problems these people are unknown and cannot be improved effectively. It is also that income disparity and living standards vary largely between different ethnic groups and immigrants of a country. For example, in Zurich it was found that British, America and European residents get a much higher income than the Swiss average whereas migrants from Somalia, Eastern Europe and Bangladesh earn much lower than the Swiss average and live in congested areas. These situations make comparisons of living standards between countries difficult. Due to the existence of different cultures, locations, extent of black economy, national income accounting conventions, needs and price levels comparison between countries become unreliable. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level UK, European & Global Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level UK, European & Global Economics essays

  1. Why has GDP growth been so slow in Somalia?

    Dependency Theory: The dependency theory developed in the 1950s, under the guide of Raul Prebisch, as a critical reaction to the conventional approaches to economic development that emerged in the aftermath of World War II11. Prebisch's initial explanation for the phenomenon was straightforward: poor countries exported primary commodities to the

  2. Carbon Credit Trading

    a competitive advantage in the future. To carry out this alternative, Heinz would need to leverage its core competencies and utilize its experience in the carbon market to make as much revenue possible from trading its credits (Cantor, 2006). This could be thought of as a home replication strategy where Heinz U.K.

  1. International Accounting Harmonization

    Emphasis on international accounting and financial reporting has increased in recent years. Those who have found the niche now serve as consultants to businesses who have moved their operations offshore, or who are importing/exporting, and do not have the expertise required to handle international finance matters.

  2. Where does the World Trade Organisation fit in the overall scheme of international public ...

    Jacob Viner The reciprocity principle, upon which the nineteenth century Cobden treaties, twentieth century regional trade agreements, and indeed the GATT/WTO are based, has an important disadvantage: its rationale is basically mercantilist. Governments bargain over export concessions, for which they "concede" import access to own markets.

  1. To what extent was Pitt responsible for the national revival after 1783?

    The type of products he taxed were luxuries like hair-powder, horses and products that only the wealthier could afford. However this policy might not have worked because it might have meant an increase in black-market trade. People brought luxuries like hair-powder and horses into the country to sell to the

  2. This investigation will try to test the level of external debt and measure its ...

    According to Franklin development strategy economic development is achieved by "growing the workforce and by increasing the productivity of existing resources or in jargon phrase "working smarter not harder""1. Indicators that affect Economic Development There are diverse indicators that affect economic, one of them is Low GNP per capita, and this is the most common method of comparing living standards.

  1. Growth is the most powerful weapon in the fight for higher living standards - ...

    Excluding the transition economies, Sub-Saharan Africa is the only region where the percentage of people living in poverty has increased. Kanbuv (2000) found from a selection of data from 150 countries that when countries grew, poverty is reduced. However, poverty is not the sole measurement of living standards.

  2. To what extent are Real GDP per capita figures an accurate measure of relative ...

    However exchange rates fluctuate, therefore if the US$ is strong against another currency it will give a distorted view of the standard of living in that country. Another problem is that the Real GDP figure does not take into account the problem of negative externalities.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work