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  National Income Application - Standard of Living

Importance of National Income Statistics

National Income Statistics has been widely used for the following purposes.

a) It represents a monetary measurement for total production in the country during a year.

b) Government requires such statistics for economic planning and development as well as for international assistance programmes.

c) Investors and business firms require the figures for marketing research purposes.

d) It can be used to measure economic performance as well as economic welfare (standard of living) of a country.

Use of GNP to Measure Standard of Living 

Generally, a high GNP is taken to indicate that society is prosperous and hence is enjoying a high standard of living.

But GNP alone is hardly a good measure for living standards since it has severe limitations.

a) GNP does not indicate the distribution of output among individuals in the society. If most outputs are enjoyed by only a few rich people, then clearly the society as a whole is not better off.

b) If GNP figures include a large proportion of expenditure on military and space equipment, we cannot conclude that the country enjoys a high standard of living. Such expenditure clearly do not benefit consumers directly.

c) Standard of living depends on the extent of real income (purchasing power). Therefore, it is necessary to account for inflation and hence it would be more accurate to measure welfare by using real GNP.

1331_GNP1.png

d) As the size of the population affects the share of goods and services per person, it must also be taken into account when we measure standards of living. Hence real GNP per capita/per head should be used.

1737_GNP.png

e) Other non-material measurements of living standard include :-

i. Life-expectancy

ii. Numbers of working hours

iii. Pollution levels

iv. Crime rates

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