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Chapter 10: Measuring National Income and Output, NUR ARISSA BINTI MOHAMAD…
Chapter 10: Measuring National Income and Output
10.6 Uses Of National Income Statistics
Standard of living indicators
reflects the individuals' welfare because it shows how much goods and services can be consumed by each individual in a country
Measured by GDP per capita
the higher increase in consumption, which in turn increases the standard of living
Two different perspectives
Compare the standard of living over time
Compare he standard of living across countries
Government planning and policies
The government can view the historical trends and performance of the economic sectors
The government can take necessary measures to improve the current level of the economy or take the right corrective actions
When the economy is in recession, the policymakers will suggest the implementation of an expansionary fiscal policy
Sectoral contributions
Various economic activities can be grouped according to the specific sectors
Secondary sector
Manufacturing and construction
Tertiary sector/ services sector
Electricity, gas and water, and business services
Primary sector
Agriculture, forestry, mining, and quarrying
The services sector is the key driver contributing to the national income
A time-series analysis can also show the revolutionary changes of each sector with time in general
The primary sector is the key contributor in less developed countries
International comparisons
Compare the absolute size of one economy relative to another and how well off the average individual is in each country
10.7 Problems Of Measuring National Income
Non-market transactions
A number of productive work is carried out in the economy which do not involve payment
No money changes hands and subsequently no payments are recorded
Problems of expertise and modern machinery
The lack of professionals is a major problem in third world countries
researchers
programmers
statisticians
analysts
Data collected on national income, regardless of the method used, has to be analyzed using sophisticated machinery
Underground economy
Official GDP estimates may not take into account in which transactions contributing to production such as illegal trade and tax-avoiding activities, are not reported, thus causing the GDP to be underestimated
Those who do not disclose their incomes or underestimate their incomes to avoid paying higher taxes may cause a loss in government income revenues and sales, which are not reflected in the GDP
Problems of double counting
Double counting in the national income will appear when both values of final goods and intermediate goods are included
Inclusion of the value of intermediate goods will amount to multiple counting which will distort the value of the GDP
Problems of non-monetized sector
The existence of a large number of non-monetized activities in third world countries makes computation of the national income more challenging
A large quantity of agriculture output in these countries do not reach the market
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