GDP Data – Problems Over Time

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Tarek Elsayed

February 10, 2002

GDP Data - Problems Over Time

Comparing GDP/national income of the UK today with the national income in the pasts presents many problems. These are:

Prices - Prices have tended to increase over time. So an increase in national income over the period does not necessarily indicate that there has been an increase in the number of goods and services produced in the economy. Only if the rate of increase of national income measured in money terms (the nominal rate of economic growth) has been greater than the increase in prices (the inflation rate) can there be said to have been an increase in output. So when comparing over time, it is essential to consider real and not nominal changes in income.

The accuracy and presentation of statistics - National income statistics are inaccurate and therefore it is impossible to give a precise figure for the change in income over time. Moreover, the change in real income over time will also be affected by the inflation rate. The inevitable errors made in the calculation of the inflation rate compound the problems of inaccuracy. The method of calculation national income and the rate of inflation can also change over time. It is important to attempt to eliminate the effect of changes in definitions.
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Changes in population - National income statistics are often used to compare living standards over time. If they are to be used in this way, it is essential to compare national income per capita (i.e. per person). For instance, if population doubles whilst national income quadruples, people are likely to be nearer twice as well of than four times.

Quality of goods and services - The quality of goods may improve over time due to advances in technology but they may also fall in price. For instance, cars today are far better than cars 80 years ...

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