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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 livingstandards 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 wellas the improvement of the lives of each individual in varying income groups. It measuresmaterial welfare.The Vaseline measure is the real !" per capita #ut real income per capita is an unrelia#lemeasure 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 nationaleconomic 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 thanothers.

!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 investmentmay #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 andsold in mar(ets at mar(etprices. The value of the output of people wor(ing unpaid forcharities, self4help groups and of housewor( might reasona#ly #e added to nationalincome statistics.

6. Innovation and development of new products.

7. 8nvironmental shco(s4 any increase in !" could have a negative impact on air/uality.

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9. !efence expenditure4 much of any growth in !" is spent on preventing crime anddefending 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 comparesits 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 ew %or( and ape Town. There are many reasons why this will not #e thecase@ Aow wealthy youd #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 anindex, 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 itadds 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 nationalincome 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 socio4economiclevel.

The Multidimensional Poverty Index was first introduced in 2010 and it an attemptdesigned to illustrate the many deprivations faced by the most severelydisadvantaged. The MPI reuires a household to be deprived in multiple indicators atthe same time. ! person is multi"dimensionally poor if the weighted indicators inwhich he or she is deprived add up to at least ##$. The MPI is closely lin%ed to theMillennium &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

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.!ccess to electricity

/.!ccess to an improved coo%ing oil

.ears of schooling

10. *hildren enrolled in school

ousehold income measures the flow of income that finds its way to households eachyear. The median is better than the mean since it is reflective of progress in themiddle of the income distribution. 3or example4 increases in '&P that go solely to therich would not increase this measure. 5oo%ing at median income would create morefocus on inclusive growth that generates wider benefits.

In the 6nited 7ingdom4 median income growth has lagged behind '&P per capitasince the early 1/0s4 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 becausethey are the most simple.