Question

(i) Explain two factors that might affect the level of injections in an economy,

(ii)       What is the effect on national income if savings increase?

3. Explain two limitations to using national income figures to reflect the standard of living in a country.
4. Should the government focus on increasing the happiness of its people?

Answer 1

(I) explain two factors that might affect the level of injections in an economy.

Injections refer to the sources which bring in money into an economy these help in growing an economy by helping in raising more capital and allowing for free flow of the same which promotes greater economic health within the country. Injections in any economy are represented by three critical factors which are known as Government Expenditure, Exports and Investment which take place within the economy.

Therefore, the factors which may affect the level of injections are as expressed above. Examples of the same are as follows.

• The government increases its overall expenditure in the economy to promote production. In this case injections increase and thus the amount of capital available in the economy also rises.
• A second key example can be when a country starts manufacturing a product which is in high demand across the globe. This causes an increase in the exports of the country and inflow of currency can lead to higher injections
• Also as illustrated, investments may lead to injections in the economy so an increase in domestic investments can also cause a change in injections in an economy.

It is worth wile to note, that the reverse is also possible which will cause a reduction in the injections in the economy respectively.

(ii)       What is the effect on national income if savings increase?

Savings is an important factor of the national income of a country. In the long run, savings represent investments since whatever people save in banks are lent out to business owners which helps in increasing the national income of a country.

Low savings therefore are not desirable in any economy. But at the same time, when consumers start saving more than what they spend it can also mean a problem for the national income since the overall consumption would decrease.

Therefore, a rise in savings increases the national income because of higher availability of capital, however this can extend only up to a particular point, post which the national income would decline because of reduced consumption expenditure respectively.

3. Explain two limitations to using national income figures to reflect the standard of living in a country.

National Income refers to the value of final products and services generated in an economy over a period of time. The problem with national income however, is that it is a quantitative measure which does not indicate the gap between the rich and the poor.

Economies may be progressing on paper but unless factors such as distribution of income are assessed, a clear picture cannot be illustrated. Therefore, the problem is that it fails to depict how this income has been distributed among different sections of the economy, There are countries like India which though have grown their national income at a substantial mark of 10 % per annum, still suffer from unequal distribution of income and therefore, national income as a measure fails to depict the standard of living in the country.

Further, it tells us about the final value of the goods and services generated but also fail to tell the details of these goods and services and whether or not they helped people in lifting their overall standards of livings or not.

Thus, it can be concluded that while national income is an important economic variable, it fails to consider qualitative factors reflecting the health of an economy respectively.

3. Should the government focus on increasing the happiness of its people?

While tools such as gross national income, gross domestic product and others have rapidly helped countries in judging the state of overall economics in the region, there are other factors such as happiness also, which need to be measured respectively.

Happiness serves as a great guide which can help the government in assessing whether or not its policies have been correct and rightly focused or not.

Countries such as Bhutan rapidly measure this to evaluate performance of governance and it can serve as a key tool and roadmap of qualitative analysis of an economy which can also be used for comparison at the same time. Gross Happiness Index is a new way of researching this which aims to measure the happiness of a country and is increasingly becoming popular with countries.

The basis of government increasing its focus on happiness is to allow development to be all round than centered on what is believed to be correct respectively.

Please feel free to ask your doubts in the comments section if any.