using-national-income-data

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An Introduction to National Income

National income is the total value of the new output of an economy over a period of time
- The output is produced by the physical (machinery) and human capital in the economy
National income gives an indication of the economic performance of a country
Nominal and real GDP are often used to measure national income
- A fall in national income may indicate the economy is going into a recession
- A rise in national income indicates the economy is experiencing economic growth

Gross national income

Gross national income (GNI) is another measure of national income
- It represents the total income earned by a country’s residents, both domestically and abroad
GNI includes the following components
- GDP and Net income from abroad
- Net income from abroad accounts for income earned by residents of a country from their investments or employment in foreign countries, minus income earned by foreign residents within the country

It can be calculated in one of two ways
- Using GDP data plus net income from abroad

$GNI space equals space GDP space plus space stretchy left parenthesis net space income space from space abroad stretchy right parenthesis$

Using income data from the factors of production plus net income from abroad

$GNI space equals space stretchy left parenthesis Wages plus interest plus rent plus profit stretchy right parenthesis space plus space stretchy left parenthesis net space income space from space abroad stretchy right parenthesis$

Using GDP to make Comparisons Between Countries

While national income data can provide valuable information for policy makers, it is also limited in how useful it is when making international comparisons

The Usefulness of National Income Data to Assess Changes in Living Standards

Purpose	Explanation
Compares changes in living standards across time	National income statistics serve as a valuable tool for comparing standards of living over time, e.g between 1998 and 2016 GNI per capita in the UK is a crucial indicator used to evaluate changes in living standards across different periods Typically, a rising GNI per capita indicates an improvement in average income, leading to an overall improvement in the standard of living for the population
Evaluates effectiveness of economic policy	Monitoring GNI per capita is beneficial in assessing how effective a policy has been in enhancing economic well-being It also assists the government in formulating economic policy to improve standard of living in the future
Compares data across countries	National income statistics are useful for making comparisons between countries They allow judgments to be made about the relative wealth and standard of living within each country They allow comparisons to be made over the same or different time periods E.g. The growth of the Asian Economies in the last 15 years can be compared to the growth of the European Economies in the 1990s

The Limitations of Using GDP for Comparisons

The Limitations of Using GDP Data to Compare Living Standards Between Countries over time

Limitation	Explanation
Lack of information provided on inequality	The distribution of income in an economy is provided as an average (GDP/capita) The differences in the standard of living within the same country can be significant
Quality of goods and services	GDP provides no information on the increase or decrease in the quality of goods or services over time If quality worsens but prices are lower, then the standard of living is judged to have increased The poor quality may actually have decreased the standard of living
Does not include unpaid or voluntary work	If it included voluntary or unpaid work, then GDP/capita would be higher E.g. Some economies have a high amount of family child care provision. This increases standards of living but is not recorded in any way
Differences in hours worked	GDP data does not

Economics-A-level-Aqa

using-national-income-data

An Introduction to National Income

Gross national income

Using GDP to make Comparisons Between Countries

The Limitations of Using GDP for Comparisons

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