Podcast
Questions and Answers
What happens to average income per head if national income grows at a slower rate than population?
What happens to average income per head if national income grows at a slower rate than population?
Which country is likely to have a better standard of living?
Which country is likely to have a better standard of living?
What is the limitation of GDP calculated at market prices?
What is the limitation of GDP calculated at market prices?
What is not accounted for in national income?
What is not accounted for in national income?
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What is the effect of taxes on aggregate demand?
What is the effect of taxes on aggregate demand?
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Which of the following is an example of an injection?
Which of the following is an example of an injection?
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What is the result of an increase in savings?
What is the result of an increase in savings?
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Which of the following is a leakage from the circular flow of income?
Which of the following is a leakage from the circular flow of income?
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What is the effect of government expenditure on aggregate demand?
What is the effect of government expenditure on aggregate demand?
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What is one of the reasons for calculating national income?
What is one of the reasons for calculating national income?
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What can national income statistics help policymakers with?
What can national income statistics help policymakers with?
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What can be inferred from a rising national income?
What can be inferred from a rising national income?
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What is one of the uses of national income statistics in the European Union?
What is one of the uses of national income statistics in the European Union?
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Why is the debt-to-GDP ratio important for a country?
Why is the debt-to-GDP ratio important for a country?
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Study Notes
Limitations of National Income Statistics
- National income growth rate can be misleading if it's slower than the population growth rate, resulting in a decrease in average income per head and a fall in standard of living.
- The quality of goods and services produced affects standard of living: a country prioritizing healthcare and education over military spending will have a better standard of living.
- Inflation and deflation affect national income: an increase in prices may boost national income, but it can lead to a decrease in standard of living; GDP calculated at constant prices is a more accurate reflection of economic growth.
- The hidden/shadow economy is not accounted for in national income statistics: unrecorded economic activity is not included in national income calculations.
Distribution of Wealth and Inequality
- National income statistics do not consider the welfare of citizens or income inequality within a country.
- The inequality-adjusted Human Development Index (IHDI) can be used to better identify inequalities and overcome the limitations of national income statistics.
National Income
Leakages
- Reduce aggregate demand
- Types of leakages:
- Taxes: reduce disposable income, decreasing aggregate demand
- Savings: reduce consumer spending, decreasing aggregate demand
- Imports: reduce domestic spending, decreasing aggregate demand
Injections
- Increase aggregate demand
- Types of injections:
- Government Expenditure: increase aggregate demand through government spending
- Investment: increase aggregate demand through investment in capital goods
- Exports: increase aggregate demand through foreign spending on domestic goods
Importance of National Income Calculation
- National income calculation is crucial for measuring economic growth, providing an indication of a country's economic performance.
- It serves as a vital tool for economic planning, as policymakers rely on national income statistics to make informed decisions.
- National income calculation helps determine the standards of living, revealing whether it has increased or decreased over time.
- The calculation is essential for determining the debt-to-GDP ratio, which can impact interest rates on government borrowings.
- For EU member states, national income calculation is used to determine their contribution to the EU Budget, which is based on Gross National Income (GNI).
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Description
Learn about the limitations of national income statistics, including how population growth rate, quality of goods and services, and inflation/deflation affect national income and standard of living.
