Comparison of National Income over Time

Problems Involved in Comparing National Income over Time

a) Changes in price level

We must take into account of price changes (CPI) to give a more accurate picture of actual increase in National Income (NY).

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b) Changes in the quality of goods

Goods generally improve in its quality over time.

As it is difficult to measure quality improvement, any changes in NY may be underestimated.

c) Changes in the distribution of NY

If the increase in NY is not equitable (or evenly distributed), then it is inevitable that some people will be better off and some are even worse off.

d) Changes in the size and composition of population

An increase in the size of the population does not necessarily bring about an increase in NY as such increase may be largely due to an increase in the number of dependents. This will increase the burden of those who are working and hence, will now be worse off in real terms.

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