Answer to Question #233726 in Macroeconomics for LwaziM

Question

Give three reasons why national income accounts are not very useful in making

comparisons of living standards between countries.

Answer 1

(1)A rise in national income does not mean there is a rise in living standards. The rise in national income may occur as a result of increased spending on items like - defence, which does not impro­ve living standards of people.

(2) In many cases national income rises during war as 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. People might have come to enjoy more leisure, because they work fewer days and national accounts do not note this.