Uses and problems of GDP as a measure including alternatives to GDP as a measure of economic performance

1. Aquinas College Economics Department
Uses of National Income Data
Problems and Other Methods of
Measuring an Economy
ECON4

2. Aquinas College Economics Department
3 Abbreviations you need to know
GDP: Gross Domestic Product – All output produced from
resources in a country
GNP: Gross National Product – Output produced within a
country plus net property incomes from abroad
NI: National Income – Output produced within a country
plus net property income minus depreciation on assets

3. Aquinas College Economics Department
Problems with GDP as a Measure
Only economic activity that has a
monetary value is included so non
monetised sector is automatically
excluded such as stay home
parents
The Shadow Economy still
operates without inclusion in GDP
figures as it is undeclared to tax
authorities – Black market trades
1. GDP doesn't measure all economic activity

4. Aquinas College Economics Department
Problems with GDP as a Measure
Improvements in a products quality
is not picked up by GDP figures and
this can have a significant impact
on living standards
Gains in welfare as therefore
understated
2. GDP doesn't measure improvements in quality

5. Aquinas College Economics Department
Problems with GDP as a Measure
Whilst GDP per capita (per person)
can increase it does not mean that
the incomes of all the population
have increased together
Some sectors of the population
have not benefited as much as
others
3. Distribution of Income

6. Aquinas College Economics Department
Problems with GDP as a Measure
People’s living standards need to
have leisure time included
A continued rise in GDP resulting
from increased economic activity
can have a detrimental effect on
society
4. No accounting for leisure time

7. Aquinas College Economics Department
Problems with GDP as a Measure
Continued economic growth can
lead to significant negative
externalities such as increased
pollution or the erosion of non
renewable materials
This is not featured in GDP figures
5. No mention of negative externalities

8. Aquinas College Economics Department
Problems with GDP as a Measure
No all spending on an economy is
increasing the living standards in
an economy.
Increased spending on defence or
international organisation
membership fees
6. Allocation of resources is not accounted for

9. Aquinas College Economics Department
Problems with GDP as a Measure
GDP is difficult to compare like for
like between countries
 Each country may collect figures
differently
 Lack of international consensus
on accounting methods and
classifications
7. Relative comparisons

10. Aquinas College Economics Department
Purchasing Power Parity
Exchange rates that take into account how a
typical collection of goods costs compared to
another country

11. Aquinas College Economics Department
Alternatives to GDP as a measurement
Calculated to give an average from three
indicators
1. Life Expectancy
2. Education Index
3. GDP Per Capita Index
Maximum on the scale is 1
1. Human Development Index (HDI)
UK is 0.875
[2013 HDI]

12. Aquinas College Economics Department
Alternatives to GDP as a measurement
Places importance on four key areas
1. Life Expectancy
2. Education
3. Economic Provision
4. Social Inclusion
The Lower the Better
2. Human Poverty Index
UK is 14.8
[2012 HPI]

13. Aquinas College Economics Department
AS Level Revision Site (ECON1, ECON2)
• http://www.aquinaseconomicsas.co.uk
A2 Level Revision Site (ECON3, ECON4)
• http://www.aquinaseconomicsa2.co.uk
Aquinas Economics on Twitter
• http://www.twitter.com/aquinaseconomic
Useful Links