Essay Plans

Explain the limitation in and the use of - National Income Accounts.

SYNOPSIS:

This essay requires a reversal of the question: first we discuss the uses and then the limitations on these uses. The opening paragraph should define National Income (the value of the total flor of goods/services available to a nation during a stated period of time eg. 1 year) and mention briefly the three months of calculation - income, output and expenditure. These will be returned to later when discussing the limitations.

POINTS:

  1. Measuring economic growth:

    Over a period of time BUT does not include social costs neither items that arguably should be included - crime rate, suicides, provision of parks, OR distribution of expenditure, eg, defence or housing programme.

  2. Comparing countries:

    In terms of affluence. Also to assess the effect of policies, eg, monetarism or politics, eg, conservation on a country's fortunes.

  3. Government planning: in planning previous events are taken into account. Trends may be extrapolated. National Income calculation provides the figures for these trends.

  4. Evaluation of economic climate - the figures in National Income may be used by interested parties for their own forecasts.

    Limitations

  5. The effect of inflation. Even if GDP is deflated, an index is by its very nature an average so if the weighting, for example, is unrepresentative thus the deflation will be also. Inflation in different countries will further complicate international comparisons.

  6. Differences in timing, calculation, role of the barter economy, distribution, changes in population size and structure will further complicate the issue. Add to this the increase in the black economy (difference between income and expenditure) and unreliability of statistics in general, eg. on the returns of the self employed and National Income calculations can only at best be an estimate.

  7. Other facts could include the costs of pollution, the degree of 'happiness' (South of England are richer but the North are happier apparently) and factors such as climate!! A cold summer in England would reduce the expenditure on sunglasses but increase central heating costs. Equally changes in taxes would further distort the figures - in 1990 Trinidad is increasing the purchase tax on electricity from 5% to 15% VAT for example which will probably make inflation worse.
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