Explain the problems that the Office for National Statistics would encounter estimating GDP of the UK economy.
Craig Rothery 13CJ
a. Explain the problems that the Office for National Statistics would encounter estimating GDP of the UK economy.
There are many problems that can be encountered when estimating GDP of the UK economy. Inaccuracies can arise for a number of reasons. The hidden economy is one such problem. This 'shadow economy' is where taxes are evaded by various methods. The most common is to work and be paid in cash, thus avoiding the need to declare income to the tax authorities and avoiding income tax. There is also a substantial amount of 'welfare cheats' who claim benefits they are not entitled to. It is difficult to estimate the size of the hidden economy, and so the true size of GDP is underestimated. It is estimated that the size of the hidden economy is as large as 7-15% of GDP, meaning that GDP is underestimated by at least 7%.
Another problem is home produced services. The work of a housewife or husband is not paid and thus the total output produced in the UK economy is undervalued by a massive amount. DIY is another example of home produced work that is unrecorded, yet it is a service that if done by a professional would be included in GDP. The more DIY done in the UK means a larger underestimate of GDP by the Office of National Statistics. A further problem arises from the public sector. It is difficult to value the output of much of the public sector, as it is often not bought or sold. To attempt to avoid this problem, the cost of production is valued as the same as output. However, this method obviously isn't accurate and can produce dubious results. The final problem with estimating GDP is the accuracy of the statistics used to calculate it. The calculations for GDP are made up from millions of returns to the government, so there are bound to be numerous inaccuracies. All these problems make it increasingly difficult for the National Office for Statistics to estimate GDP.
a. Explain the problems that the Office for National Statistics would encounter estimating GDP of the UK economy.
There are many problems that can be encountered when estimating GDP of the UK economy. Inaccuracies can arise for a number of reasons. The hidden economy is one such problem. This 'shadow economy' is where taxes are evaded by various methods. The most common is to work and be paid in cash, thus avoiding the need to declare income to the tax authorities and avoiding income tax. There is also a substantial amount of 'welfare cheats' who claim benefits they are not entitled to. It is difficult to estimate the size of the hidden economy, and so the true size of GDP is underestimated. It is estimated that the size of the hidden economy is as large as 7-15% of GDP, meaning that GDP is underestimated by at least 7%.
Another problem is home produced services. The work of a housewife or husband is not paid and thus the total output produced in the UK economy is undervalued by a massive amount. DIY is another example of home produced work that is unrecorded, yet it is a service that if done by a professional would be included in GDP. The more DIY done in the UK means a larger underestimate of GDP by the Office of National Statistics. A further problem arises from the public sector. It is difficult to value the output of much of the public sector, as it is often not bought or sold. To attempt to avoid this problem, the cost of production is valued as the same as output. However, this method obviously isn't accurate and can produce dubious results. The final problem with estimating GDP is the accuracy of the statistics used to calculate it. The calculations for GDP are made up from millions of returns to the government, so there are bound to be numerous inaccuracies. All these problems make it increasingly difficult for the National Office for Statistics to estimate GDP.
