3.2.1.4 Uses of national income data

What is the use and limitations of national income data to assess changes in living standards over time?

• National income data: (e.g. real GDP per capita, real gross national income per capita)

• It’ll give a better indication of people’s standards of living

• It doesn’t tell you about losts of quality of life factors (e.g. amount of leisure time people have , health)

What is the use and limitations of national income data to compare differences in living standards between countries?

• Per capita figures makes it easy to compare figures between countries with different population sizes

• It ignores economic welfare brought about by the hidden economy/economic activity that’s not recorded by government statistics (a large factor of developing countries’ economies)

What is the importance of using purchasing power parity (PPP) exchange rates when making international comparisons of living standards?

• Purchasing power: real value of an amount of money with respect to what you actually buy with it (e.g. Malawi/less developed country will buy more goods than Canada/more developed country with $1). PPP adjusts GDP per capita figures, taking into account differences in purchasing power in those countries. It makes living standards comparison more accurate and easier

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