The use and limitation of National Income as an indicator of changes in living standards
Economic data:
- GDP
- GDP per capita
- Disposable income
- Working hours
GDP figures show the total amount of income generated in the economy over a year
GDP per capita looks at the income per person in the population
GDP per capita figures allow for comparison between countries
To compare figures they need to be converted into a common currency
To make relevant comparisons also need to look at the differences in the costs of goods and services between countries – purchasing power parity
Limitations of National Income as an Indicator of Changes in Living Standards
GDP figures alone can't be the only indicator of economic well being. The black or shadow economy has a larger value in some countries than others and this will distort GDP figures by making them lower than they should be.
GDP figures can also be problematic as they fail to account for regional disparities in countries and inequalities in income and wealth. In addition GDP figures don’t offer any insight into quality of life – they could be used with working time figures to get a clearer view of a countries economy
Home working figures are not included in the values and therefore GDP may not be truly representative. GDP could have grown due to an increase in consumption however if this is not matched by an increase in investment then it will lead to problems in the future as there are insufficient capital goods to produce consumer goods needed.
Changes in life expectancy increase living standards but are not accounted for by GDP figures
Other Measures
Other measures that can be used to compare standards of living can be used. These include:
- Purchasing power parity which compares the cost of living in different countries
- Human development index
- Human poverty index
