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| There are 3 related measures of economic activity >GDP Gross Domestic Product > GNP Gross National Product > NNP / Net National Product- National Income | GDP is the value, in money terms of the total output of final goods and services produced in an economy over a period, usually one year. |
| Final goods include both consumer and capital goods. There are 3 methods for calculating this value: | Income Method Output Method Expenditure Method |
| Various problems need to be avoided in each method if an accurate measure of GDP is to be achieved. | However to get from GDP to GNP it is necessary to adjust for net factor incomes from abroad(NFIA). GDP measures an income generated in a particular country no matter who has a claim to that income. |
| Ireland as an example is a net recipient of inward investment and consequently has a negative NFIA with the result that GNP is less than GDP | To get from GNP to Net National Product (NNP) it is necessary to adjust for the depreciation of the national stock of capital. Part of the capital stock will be used up in the production of goods and services. |
| NNP = GNP - Depreciation GDP @ market price = C+ I+G+X-M | National income figures are designed to measure the extent of economic activity in an economy. The level of economic activity in turn determines the material living standards of the society. |
| The figures give an indication of how living standards in a particular country are 1) Changing over time 2) Compare to other countries | It must be remembered that the figures are exclusively concerned with material living standards and say nothing about the quality of life in a country. |
| GNP per capita is also not a measure of competitiveness of an economy nor disparities in income distribution. It is arrived by dividing the population of a country into it's GNP | It is only an average measurement and it is a poor measure of a country's living standards. |
| In 2011 GDP was €159bn and GDP per head of capita was €35,455. When we remove NFIA and look at figures for GNP in 2011 this was 127bn and GNP per head of capita was €28,066 | In 2011 Ireland had the 4th highest GDP per capita in the EU. However based on GNP in 2011 Ireland was 11th highest at 2% above the EU average |
| GDP overstates the income per capita in Ireland which is exacerbated by the low level of corporate tax rate in Ireland an the presence of MNC's transferring pricing which overstates the profits made in Ireland, value added. | GDP per capita does also not take into account "shadow activites", non monetary transactions, non marketable goods and services. It is not a measure of well being or welfare. |
| GDP also does not take into account that different countries engage in the production of completely different production of goods and services or the quality of the goods produced. | It is also important when comparing living standards to distinguish between real income and nominal income. The distinction is important when there is inflation in the economy as changes in nominal income will exaggerate the change in living standards. (current / market prices) not really relevant at present in ireland as low inflation. |
| It is also difficult to compare when all figures have to be bought to a standard currency to be measured and if exchange rates fail to reflect purchasing power parities | HDI - Human Development Index is a better measure of living standards. It is compiled by the UN and it is a measure which seeks to look at the available choices people have. |
| It comprises of 3 basic factors affecting living standards: 1 real GDP per capita (adjusted for PPP) 2 Life expectancy 3 Education - levels of literacy | The highest HDI level is given a value of 1. Low levels of HDI are given a value close to 0. |
| In 2010 Ireland ranked 5th with a HDI of .891 Norway was the highest with a HDI of .938. | Another measure of income inequality which can be used is the Gini- co-efficient. Its range is the same as the HDI between 0 and 1 |
| A Gini-coefficent of 0.00% would correspond to no inequality. One (100 on the percentile scale) reflects a maximum inequality (all of the nations income received by a single household) | The CSO survey on Income and Living standards (SILC) published in February 2013 reports. Ireland in 2011 had a Gini- coefficient of 31.1% not much changed since 2010 of 31.6%. The 2010 value reversed a downward trend evident in data between 2005 and 2009. |
| Another measure is NEW Net Economic Welfare It is an attempt to incorporate some of the non-monetary aspects in a measure of living standards such as pollution, congestion, leisure and quality of natural and social environment. | This measure is necessarily more subjective and makes comparisons across countries more difficult. |
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