Mr O Sullivan Macroeconomics A2 3.4.

1
Measuring National Income
Comparing and measuring Standards o !iving "met#ods and pro$lems%
Investigate explain the different approaches, methods of and use of data in measuring living
standards in economics
&#e 'lo$al Conte(t ) Measuring o *Standards o !iving "internet researc#%
Why do we measure Standards of Living?
We measure standards of living to try and grasp the progress of the nation as a whole as well
as the improvement of the lives of each individual in varying income groups. It measures
material welfare.
The Vaseline measure is the real !" per capita #ut real income per capita is an unrelia#le
measure of living standards #ecause it cannot #e compared to other countries.
What are the main issues and pro#lems with comparing Standard of Living data and national
economic data with other countries.
$. %ou have to convert real income per capita into a common currency.
&. 'a(ing ad)ustments for food prices and energy prices is difficult and so it is hard to
#ring a#out a purchasing power parity standard.
*. The """ dollar ta(es into account that it is cheapest to live in some countries than
others.
!escri#e and explain the issues regarding +conventional, methods
-y using conventional !" data, many pro#lems arise.
$. .irstly, there are regional differences in incomes and spending.
&. Ine/ualities of wealth, some people may #e getting richer #ut the ine/uality gap may
#e growing.
*. 0n increase in !" may have #een #rought a#out #y longer wor(ing hours and less
leisure time for wor(ers.
1. There may #e im#alances #etween consumption and investment. The investment
may #e aimed at improving productivity and not goods and services for consumers.
2. There may #e changes in life expectancy as a result of higher !".
3. The value of non4mar(eted output5 'uch useful andvalua#le wor( is not produced and
sold in mar(ets at mar(etprices. The value of the output of people wor(ing unpaid for
charities, self4help groups and of housewor( might reasona#ly #e added to national
income statistics.
6. Innovation and development of new products.
7. 8nvironmental shco(s4 any increase in !" could have a negative impact on air
/uality.
9. !efence expenditure4 much of any growth in !" is spent on preventing crime and
defending the nation.
We should loo( at median per capita household incomes.
!escri#e and explain the +newer, methods of measuring :e.g. +Well4#eing, or """;
"""4 his is illustrated #y the -ig 'ac index, which ta(es a -ig 'ac ham#urger and compares
its prices in different countries in order to esta#lish the relative value of their currencies. If
""" holds true, then you can #uy the same goods and services with <$== in London as you
can in lasgow, >ew %or( and ?ape Town. There are many reasons why this will not #e the
case@ Aow wealthy you,d #e in different countries with different currencies.
Well4#eing4 happy index and A!I etc.
'"I, 'illenium development goals.
When you start to go mulit4dimensional :different elements to creating an index; with an
index, there results can #e unrepresentative and s(ewed.
!" is not a measure of a standard of living with """. It is one fo the #etter ones #ecause it
adds up what is recorded :all the goods and services produced in a country;.
What conclusions can we drawn from your notes and investigation into data and national
income statistics
The A!I is only good for measuring access to services and not /uality, however it does allow
for comparison #etween countries, in particular, ones that are at a similar socio4economic
level.
The Multidimensional Poverty Index was first introduced in 2010 and it an attempt
designed to illustrate the many deprivations faced by the most severely
disadvantaged. The MPI reuires a household to be deprived in multiple indicators at
the same time. ! person is multi"dimensionally poor if the weighted indicators in
which he or she is deprived add up to at least ##$. The MPI is closely lin%ed to the
Millennium &evelopment 'oals targets and includes ten components(
1.Possession of some assets
2.)utrition
#.*hild mortality
+.!ccess to drin%ing water
,.!ccess to sanitation
-.!ccess to a safe room
..!ccess to electricity
/.!ccess to an improved coo%ing oil
0.1ears of schooling
10. *hildren enrolled in school
2ousehold income measures the flow of income that finds its way to households each
year. The median is better than the mean since it is reflective of progress in the
middle of the income distribution. 3or example4 increases in '&P that go solely to the
rich would not increase this measure. 5oo%ing at median income would create more
focus on inclusive growth that generates wider benefits.
In the 6nited 7ingdom4 median income growth has lagged behind '&P per capita
since the early 10/0s4 in part because of the growth of income inequality reflected in
an increase in the Gini coefficient- measures from 0-1 of equality.
GDP and PPP are the best methods of measuring standard of living because
they are the most simple.