A) Explain three uses of national income statistics B) Evaluate the use of GDP figures as a means of comparing countries. A) National income (total net value of all goods and services produced within a nation over a specified period of time) statistics have many different uses. It is for example used as a comparison scale between countries.
This is a useful information, if for example a country needs help, but the resources of the helping countries are relatively scarce (limited), the country with the lowest national income would be more likely to get the most help from the other countries to get their economy going, built up an infrastructure or to get out of a trough. Another way of using the national income is to make the government know how their economy is going, especially, if their Gross Domestic Product (GDP) (measures the value of output produced within an country over a given amount of time) is rising, which is good, or decreasing.
This is important to know for the government and companies, because they can see different things for the statistics, for example an increase in demand or the employment, if it is going to be higher or lower. If there is a higher demand, of course the companies will be more likely to employ people, who will have an increase in their income and are then buying things, what will increase the economy.
And on the other hand the statistics can be used to prevent a crisis or even a crash of the economy by reacting quick, by seeing that the national income has decreased The third use is that the national income can be used as a base for analysing the economy over an amount of time. This is done by experts, who are creating models if there will be economic growth or not, how that will influence the business or even the countries.
This helps for example people, to know if they are more likely to be employed, so they can make up their living standards from it or borrow money, because if they are seeing the model is showing that there will be economic growth, the people think they are going to have an increase in payment or a better job, so they are more likely to lent money, which will fasten up the economy, but will also increase inflation. Nicolas Heinzinger Economics Prep 3 B) In my opinion the use of GDP for comparing different countries is not a good thing.
And I am going to show why in three points. First of all, people are more likely to live or to work in a country with a higher GDP. Therefore all the people who are living in a country with a small GDP, are going to leave the country, that means the local economy will slow down. That means the GDP will be even smaller and even more people are leaving the country, because they see better opportunities in a country with bigger GDP, for example Turkey-Germany. But this influences also the country where the people are going.
The foreigners are more likely to work for lower wages, so they are more likely to be employed. Therefore the local people will loose their job, which will increase the unemployment rate, but the economy is rising, so is inflation. That means the people are losing money by inflation, but not earing anything. Therefore the people will be very unhappy and are unpleased with the foreigners. My Second point is that there is always a kind of the fight, who has a bigger GDP.
But these conflicts are done by the governments, who have nearly nothing to do with the GDP. The workers are the people who are working for the GDP, but most of them don’t care about the others countries GDP, as far as the economy is good and everything is going fine. But these workers have to work over hours, work even on Sundays or Saturdays, for something they don’t really care for. In my opinion that is wrong. If the people want to work extra hours, because of a higher GDP they should do it out of their own interest.
My last point is that the GDP is showing where the economy is rising, therefore big companies are more likely to produce their goods in those countries, because they know that the GDP is rising and therefore their business will do good as well there. So for the other countries with a low GDP there is no way of getting a big company producing in their country, therefore their GDP is going to stay low. My conclusion therefore is that we should not compare countries just with their GDP, because this could lead to wrong conclusions.