Economics Essay Past Paper 2007 Jamie Halvorson Environmentalists fear that future increases in National Income may

y be at the expense of sustainable development. (a) Briefly describe 3 methods of measuring the value of the UKs national income. 6 (b) Explain some of the uses of, and problems involved in calculating, National Income. 10 (c) Explain what is meant by sustainable development and describe some measures governments have taken to help achieve it. 9 National Income can be measured on three separate ways and these are: The Income Method this way is simple - it calculates of the income from firms and individuals; it then totals this up and this gives us one of the answers for national income. The Expenditure Method This method uses the equation: C+I+G+(X-M), this stands for Consumers + Investment + Government +(Exports Imports) This once again will give a total and this will give us a figure that states the national income. The Output Method This system works on the value added system. For example a farmer may start with a cow and this cow has a price, later the cow is killed for its hide and this is turned into leather. The extra income that is generated from this will be calculated by value added, how much was gained by treating the hide and making it into leather? It will next be made into say a bag or shoes and once again it is the extra income gained through the value added system that is calculated. Therefore this system uses three separate areas: The extractive industry, the secondary industry and the tertiary industry. To sum up, it is the value of everything produced in our economy in a given period. SIX MARKS (b) The use of calculating national income is to see how well (or badly) the economy is doing at a certain time. Means of comparison with other periods and/or with similar economies. If national income is at an all time high we will be able to see that economic and technical efficiency will be high, therefore so will our productivity. It will be used to plan for the future as we may be able to predict growth, it also allows the UK economy to compare itself to other economies in the world. Although measuring National income is a good and almost needed thing, there are problems. The main problem that is encountered is the shadow economy this is the part of the undeclared earnings. Every economy will have this and this upsets the balance, as it stops the figure from being clear, we are not able to tell if the figure is exact. In some economies, for example the Italian economy the shadow is so large they have to take it into consideration otherwise the figure would not be clear at all. The national income will not give a clear representation of everyone in the UK, this is because we have some extremely rich people and some adversely poor people, once again this means that the balance is upset and the reading will be unclear. Another problem is double counting; this is when you count the same product twice e.g. the cow and the leather. Use of the Output

method will stop this double counting, although it is still seen as a problem. Neither does it take account of externalities. 7 MARKS (c) Sustainable development takes the form of many different things, this may be pollution or it could be fiscal stability. In terms of pollution, governments can set limits on to how much pollution a firm can produce in a given period of time, if the firm breaks this limit the government will usually prosecute them. This is an action taken by the government to make sure that the air we breathe remains as clean as possible for future generations. Sustainable development may be in the plantation of trees for future generations. This is because the human race is cutting down large parts of the amazon so that there is more space for agriculture. There is a range of consequences for these actions, these include: flooding of the ground making it inhospitable, there will be an increase in CO2 and CFCs due to the machines used to cut them down (adding to air pollution) there will also be the affect of a rise in CO2 levels due to trees not absorbing it. Sustainable development may not just be environmental instead it could be fiscal. We saw in 2008 when the recession began that we had been to lenient with the banks over recent years, now they will be watched to make sure that something like this does not happen again anytime soon. This is another effort made by the government to make sure the UK is sustainable for generations to come. 6 MARKS. I would have liked a clearer explanation of what sustainable development is. VG though 20/25