Richard Juan 12D 1-Dec-08
Sample Question on GDP/HDI
Discuss the main problems involved in measuring the national income of a country.
There are several problems involved in measuring the national income of a country. One of them is that it may be inaccurate. The data that are used to calculate the various measures of national income come from a vastly wide range of sources, including tax claims by households and firms, output data and sales data. Also, there are money involved in the informal markets. The national income does not take account any economic activity going on in the informal market. In other words, anything that does not get officially recorded does not contribute to the overall national income of a country. For example, if you clean the house, your work will not be included in the country’s GDP, but if you hire a cleaning company, it will increase the GDP of the country, even though the outcome is the same. LEDCs do not provide accurate GDP for anyone to compare; the value of the work they’ve done is only estimated and are usually undervalued. Hidden market or the black market do not record their transactions and report to the government because it involves illegal activities such as drug trafficking. Another problem is the external costs; GDP figures do not take into account the costs of resource depletion. Cutting down trees leads to an increase in GDP, but there is no measure to account for the loss of these trees. GDP figures do not make deductions for the negative consequences of air and water pollution and traffic congestion. These external costs will compromise the quality of life, even though GDP increases. In addition, GDP may grow because people are working longer hours, but they might not actually enjoy higher standards of living. GDP accounting does not include free activities such as volunteer work or people caring for the elderly and children at home, which are all activities that can lead to a better society.
