Limitation of National Income
INTRODUCTION Defining and measuring the standard of living
The standard of living is a measure of the material welfare of the inhabitants of a country. The baseline measure of the standard of living is real national output per head of population or real GDP per capita. This is the value of national output divided by the resident population. Other things being equal, a sustained increase in real GDP increases a nation’s standard of living providing that output rises faster than the total population. However it must be remembered that real income per capita on its own is both an inaccurate and insufficient indicator of true living standards both within and between countries.
National income data can be used to make cross-country comparisons. This requires * Converting GDP data into a common currency (normally the dollar or the Euro) * Making an adjustment to reflect differences in the average cost of goods and services in each country to produce data expressed at a ‘purchasing power parity’ standardLimitations of national income and standard of living.Problems in using national income statistics to measure living standards
GDP data on its own is an insufficient indicator of our economic well-being. The following quote adapted from an article in the Independent in December 2002 sums up the issue quite well.
‘Improving living standards is about poor families gaining access to what is available at the time to make life comfortable, healthy and rewarding. In the end, economic statistics only measure what they measure, which may not bear much relation to how well off we are.’
Source: Adapted from the Independent The table below provides time series data on per capita national incomes for the twenty five nations of the European Union. Ireland has made huge strides in improving her relative standard of living. In 1994 Ireland’s GDP per capita was just 84% of the EU average but extremely rapid economic growth allowed the Irish economy to surge past the EU15
The standard of living is a measure of the material welfare of the inhabitants of a country. The baseline measure of the standard of living is real national output per head of population or real GDP per capita. This is the value of national output divided by the resident population. Other things being equal, a sustained increase in real GDP increases a nation’s standard of living providing that output rises faster than the total population. However it must be remembered that real income per capita on its own is both an inaccurate and insufficient indicator of true living standards both within and between countries.
National income data can be used to make cross-country comparisons. This requires * Converting GDP data into a common currency (normally the dollar or the Euro) * Making an adjustment to reflect differences in the average cost of goods and services in each country to produce data expressed at a ‘purchasing power parity’ standardLimitations of national income and standard of living.Problems in using national income statistics to measure living standards
GDP data on its own is an insufficient indicator of our economic well-being. The following quote adapted from an article in the Independent in December 2002 sums up the issue quite well.
‘Improving living standards is about poor families gaining access to what is available at the time to make life comfortable, healthy and rewarding. In the end, economic statistics only measure what they measure, which may not bear much relation to how well off we are.’
Source: Adapted from the Independent The table below provides time series data on per capita national incomes for the twenty five nations of the European Union. Ireland has made huge strides in improving her relative standard of living. In 1994 Ireland’s GDP per capita was just 84% of the EU average but extremely rapid economic growth allowed the Irish economy to surge past the EU15