3.4.1 Macroeconomic Indicators Uses of National Income Data AQA ECON4: T HE NATIONAL AND INTERNATIONAL ECONOMY How would you measure the standard of living in a country? What 5 countries do you think have the lowest standard of living?

U SES OF N ATIONAL I NCOME D ATA  You should be able to discuss the use and limitations of national income data to draw conclusions on living standards  You should be able to interpret different types of economic data, such as the Human Development Index, and use them to compare the living standards of the residents of different countries  You should be able to discuss the limitations of using such data to arrive at conclusions

N ATIONAL I NCOME D ATA  In ECON4, it is important to be familiar with how national income data can be used to measure living standards  The main measure used is GDP per capita. It is calculated by: National Income Population  The is the most commonly used method to measure a country’s living standards. As GDP per capita rises, it is also assumed that living standards in that country also rise  It is common for GDP per capita to be expressed in US$’s, which allows for direct comparison between nations

S OME S TATISTICS Top 10GDP per Capita ($) Bottom 10GDP per Capita ($) Luxembourg111,162Malawi226 Norway100,819Burundi267 Qatar93,352 Central African Republic333 Macau91,376Niger413 Switzerland80,528DR Congo454 Australia67,468Liberia454 Denmark58,930Madagascar471 Sweden58,164The Gambia494 Singapore55,182Ethiopia498 United States53,143Guinea-Bissau504 NB: United Kingdom: 22 nd 39,351 Source: World Bank 2013 Discuss to what extent you think this table is an accurate reflection of living standards.

L IMITATIONS OF N ATIONAL I NCOME D ATA (1) GDP per capita figures however, remain limited because they only measure material standards of living and as a result make it difficult to draw definitive conclusions about living standards in a particular country. Limitations include:  Distribution of income  GDP per capita measures an “average” level of income in a country. This is very simplistic, and the data can be skewed by large amounts of income resting in the hands of a small number of individuals. In many countries, GDP per capita can be rising whilst inequality worsens  Negative externalities  The data does not include information on for example, increased levels of pollution, general air quality, degradation of natural habitats and congestion  Quality  National income data does not recognise that goods and services may have improved in quality whilst remaining at a similar price. This is especially true in technology markets, so the data tends to underestimate actual living standards At what cost? China smog 'is health crisis,' says World Health Organisation.

L IMITATIONS OF N ATIONAL I NCOME D ATA (2)  Black/informal market  National income data does not include output produced at home. For example, if a household paid a worker to carry out domestic tasks e.g. decorating or cleaning this would appear in statistics. If a household does this themselves, then it is excluded from the data, and so underestimates the value of GDP per capita  Comparisons between countries  The quality of data collection in different countries varies significantly, so international comparisons are more difficult and need to be treated with caution  Inflation  All figures need to be adjusted for inflation in order to compare them over time. Therefore, Real GDP per capita should be used  Healthcare  The data does not include information on the incidence of various diseases and illnesses. It might be assumed that richer countries have better healthcare and therefore better life expectancy, but they may also have higher rates of stress and depression for example  Political/Social  The data does not include important lifestyle factors such as work/life balance, crime rates, or political freedoms Changes to GDP data – what do you think will be the result of these changes?

A LTERNATIVE TYPES OF ECONOMIC DATA Given the weaknesses of GDP per capita, it is important to be familiar with different types of economic data that can be used to compare the living standards of different countries. A key alternative measure is the Human Development Index. This is an index that considers 3 key variables: 1. GDP per capita 2. Life expectancy 3. Educational attainment/literacy What makes a nation happy?

T HE H UMAN D EVELOPMENT I NDEX (HDI) Top 10Index ValueBottom 10Index Value Norway0.944Niger0.337 Australia0.933DR Congo0.338 Switzerland0.917 Central African Republic0.341 Netherlands0.915Chad0.372 United States0.914Sierra Leone0.374 Germany0.911Eritrea0.381 New Zealand0.910Burkina Faso0.388 Canada0.902Burundi0.389 Singapore0.901Guinea0.392 Denmark0.900Mozambique0.393 Source: UN Human Development Index 2013 The closer to 1, the better the human development in terms of the 3 indicators. NB: United Kingdom: 14th Discuss to what extent you think the HDI is a better measure of living standards.

L IMITATIONS OF THE H UMAN D EVELOPMENT I NDEX It may be argued that the HDI provides a more accurate measure of overall living standards, however it remains limited in its overall effectiveness. For example, the HDI does not include information on environment, inequality or social factors. Consequently, to gain a more accurate picture of living standards, it is useful to consider alternative measures and indices; and drawing conclusions based on a wider cross section of data. Alternative economic indicators include:  The Human Poverty Index  The Misery Index  The Measure of Domestic Progress Londoners lose out on Greater London Authority 'happy scale‘. Should happiness be included as a key measure?

R ESEARCH TASK Alternative economic indicators include:  The Human Poverty Index  The Misery Index  The Measure of Domestic Progress Research each of these indicators. What do they show? Are they better than GDP per capita or the HDI? Are there any other measures you can find?

I N PAIRS  In pairs choose 2 countries. One to the west of the UK and one to the east  Decide on the measures you will use to compare living standards (you might want to agree this as a whole class)  Collect data and evidence that will allow you to measure living standards in each country  Summarise your findings for each country on a cue card (or top trumps style)  On a world map display all of the groups’ cards  How easy is it to reach a conclusion on the ranking of all the countries researched? UK Living standards