Question

National income cannot be the correct indicator of a nations development give reason

Answer 1

National income refers to the monetary value of goods and services produced in a country. The key word is monetary. Money is only a claim to wealth , medium of exchange and a method of calculating value. It does not take into consideration inflation( cost of living), distribution of income and the exchange rate of the local currency. All of these affect the standard of living. Traditionally the per capita income is used to gauge the standard of living. Population size affects per capita income. China may have a high GDP but because of the size of the population, the per capita income is lower than the US. The cake has to be shared by more people. Standard of living may also be uneven. The southern part of US has a lower standard of living as compared to the north. Similarly the coastal cities of China enjoy a higher standatd of living than the interior. Economic development is not even because of uneven development and distribution of infrastructure, market access, geographical factors, access to education etc. Per capita income indicator may not be accurate as one has to consider the value of local currency against others. For example if the value of USD were to rise relative to the local currency, imported inflation may arise. No country is completely self sustaining and self sufficient. All of us depend on international trade either to buy or sell. The value of one’s currency will be determined by the outstanding national debt and the national reserves a country holds. The GDP of a country also determines the reserves of the nation. China is able to build up her reserves rapidly at the early stages because of double digit GDP growth. There is also the budgetary and fiscal policies of government. A high defense budget means less for other social and public expenditures. High income taxes for individuals and businesses discourage wealth creation but without revenue a government cannot hope to raise the living standard. Rightly policies must be toward having a bigger economic pie for all sectors of the economy to grow.However hidden agenda can be detrimental to creating new wealth or enlarging the economy (GDP).

Its halpful