Answer to Question #139065 in Macroeconomics for alice

Question

give three reasons why national income account are not very useful in making comparisons of living standards between countries.

Answer 1

Solution

National income is not the significance of living standard because

(1)A rise in national income may not mean a rise in living standards. This is because the rise may occur as a result of increased spending on other items like - defence, which can not impro­ve living standards of people. And an increase in national income may be accompanied by a rise in undesirable external reasons, such as pollu­tion, or a fall in the quality of goods.

(2) National income often rises in time of war, or the threat of war, because money is spent on weapons. This will push up GNP, but the people may be acutely short of goods to buy.

(3) Many factors affect the quality of life but are excluded from GNP. Over the last few decades, people have come to enjoy more leisure, largely because they work fewer days. The national accounts take no note of this.

So

National income is not the only measurement of living standard between two countries.