National Income (Real GDP) and the Standard of Living

There are a variety of uses for measures of national income. Governments are interested in national income since it helps them determine levels of taxation and the economic activity generated by the nation as a whole. Trade agreements can be based on a nation's national income and its income relative to other economies. Companies are interested in national income in order to determine countries which might represent significant new markets, or to gauge the effectiveness of competitors based on other countries. Individuals might be interested in national income in order to identify potential investment opportunities, or to even make relocation decisions. These are only some of the reasons which support the desire to develop some type of national income measure. This research examines national income in general, and the use of one metric (real GDP) in particular. Real GDP is then contrasted against standard of living for its relevance and appropriateness.

Although the abstract idea of a measure of national economic activity has a distinct appeal, the actual definition of national income is more problematic. At its simplest, national economic activity can be defined as the value of all goods and services produced in a given period of time, most usually one year. Immediately, there are problems assigning quantitative values for services (such as health care) in which prod

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nalysts. These figures offer economic activity for nations as a whole, but fail to take into account whether there are many people responsible for creating that economic activity, or only a few. The greater the number of people required to produce a particular level of GDP, the less likely it is that any one of those individuals has a high standard of living. Thus per capita GDP has been implemented as a way to calculate the national income on a perperson basis. In this calculation, real GDP is divided by the population in order to yield the per-capita GDP. This is a figure which can be compared across countries to offer one measure of relative standards of living. Alternative Approaches to GDP as a Measure of Well-Being Even per-capital real GDP has drawbacks as a measure of relative standards of living. Although it provides a useful benchmark measurement which can be compared across countries, it does so by converting various currencies into a single currency. Thus all currencies might be converted into American dollars, or Japanese yen, to provide a single unit of measure. But this attempt to standardize the measure introduces another problem. There are variations in currencies and cyclical variations in purchasing
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Approximate Word count = 2629
Approximate Pages = 11 (250 words per page)

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