Appropriateness of Using GDP/GNI to Measure Well-being (DP IB Economics)
Revision Note
Written by: Steve Vorster
Reviewed by: Jenna Quinn
Using National Income Statistics to Measure Well-being
National income statistics are useful for making comparisons between countries
They provide insights into the effectiveness of government policies
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
For example, the growth of the Asian Economies in the last 15 years can be compared to the growth of the European Economies in the 1990s
Using real GDP is a better comparison than nominal GDP
One country may have a much higher rate of economic growth, but also a much higher rate of inflation. Real GDP provides a better comparison
Using real GDP/Capita provides better information than real GDP as it takes population differences into account
Using real GNI/capita is a more realistic metric for analysing the income available per person than GDP/capita
Using real GNP/capita provides information on the income that is actually within a country's borders
This value can be significantly different from GDP/Capita
Examiner Tips and Tricks
When studying national income data that has been provided for data response questions, you will often see a generalised pattern emerge
Developed countries will have a smaller gap between their GNI and GDP
Developing countries often have a higher GDP than GNI - as much as 6%
The reason for this is usually linked to multinational companies involved in resource extraction, who then send income/profits home
Making Comparisons Between Countries and Over Time
The Limitations of Using GDP data to Compare Living Standards Between Countries and over time
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Lack of information provided |
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Quality of goods/services |
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Does not include unpaid/voluntary work |
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Differences in hours worked |
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Environmental factors |
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