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Chapter 8: Measuring a Nation’s Income Notes by Gritchen (26/06/21) -…
Chapter 8: Measuring a Nation’s Income
Notes by Gritchen (26/06/21)
Definition of National Income:
The flow of goods and services in a nation over a period of time, usually a year.
Concepts of
National Income
Gross domestic product (GDP)
Total market value of all final goods and services produced by factors of production in a country over a given period of time.
Nominal GDP:
GNP measures in current prices
Real Income GDP
GNP measured on a fixed price or in a base year.
GDP can go up if:
P increases, output unchanged
P unchanged, output produced increases
both increases
Characteristics:
can be measured by current prices or constant prices
Influenced by price & amount produced
is divided among four components of expenditure: consumption, investment, government purchases, and net exports.
GDP Deflator:
tells the rise in nominal GDP that is attributable to a rise in rises rather than a rise in the quantities produced.
-a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
Per Capita Income
Average income per head of population
used as an index of change in the standard of living a country.
Growth rate:
The percentage change in the quantity of goods and services produced from one year to another,
GDP and Economic Well-being
the best single measure of the standard of living (economic well-being) of a society
Since real GDP measures the quantity of goods and services produced, it is common to use GDP per capita, that is real GDP divided by population, as a measure of economic welfare or standard of living in a nation.
Limitation of GDP as
Economic Wellbeing of a Society
Things that contribute to well-being are not included in GDP:
Goods and services that sold in the black market
Transfer payment that you received from NGO, government
Income distribution
Good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population
GDP is not a perfect measure of the happiness or quality of life.
Does money brings happiness?
Human Development
Index
Developed by Pakistani economist Mahbubul,
anchored in the Indian Nobel laureate Amartya work on human capabilities
framed in terms of whether people are able to "be" and "do" desirable things in their life, and was published by the United Nations Development Programme
HDI takes into account: per capita income, life expectancy and education level
Income Inequality
refers to the varying incomes of different socioeconomic groups in an economy
also refer to it as the income gap
highlights the gap between those with the highest and lowest incomes in a country, region, or the whole world.
exists when there is an unequal distribution of incomes across various groups of individuals and households in an economy
usually compares socioeconomic groups
may also compare the incomes of men versus women, or white people versus African Americans.