1st Exam Flashcards
GDP
GDP is the total value of the goods and services produced in a country. It is a measure of the overall economic output of a country.
GNI
GDP is the total value of the goods and services produced in a country. It is a measure of the overall economic output of a country.
Difference between GNI and GDP
GNI measures the production of goods and services based on nationality whereas GDP measures the production of goods and services based on nationality
Positive Economics
how the reality is based on facts and evidence. For example, an increase in income tax reduces the disposable income of consumers. Or, out of pocket health expenditure is higher in poorer countries than in developed countries
Normative Economics
about how reality should be and is subjective. E.g. conditional cash transfers should be used to achieve higher primary school enrolments in developing countries.
iii) A line which links the cumulative percentage of population to the cumulative percentage income share is known as:
Lorenz Curve
Lorenz Curve
iii) A line which links the cumulative percentage of population to the cumulative percentage income share is known as:
iv) According to the human capital approach, private investments in education are determined by:
The comparison between the present discounted value of future income corresponding to educational qualifications, and the costs incurred to acquire them.
PPF
The production possibility frontier (PPF) describes:
The maximum combinations of output that the economy can produce using all its available resources.
Limitations of GDP
Fails to include the output of non-market activities.
Ignores income distribution.
Does not measure the stock of wealth in a country at a given moment.
Economics
“Economics is the study of how societies decide what, how and for whom to produce” – BVFD p.3
Opportunity Cost of One Good
Quantity of the other goods that must be sacrificed to obtain an additional unit of that good
Causes of Food Price Increas
o Weather shocks o Fast growth in China and India o Increase Use of Biofuels o Mounting oil prices o Export restrictions o Stock piling (hoarding)
How the focus of Development has changed
• 1970’s development book has an image of a tractor and a city in the background – agricultural – uses the word growth – productivity focus
Today our text book focuses less on growth focuses more on women, educating children, technology, industrialisation
Economic Development
Economic development was the capacity to generate and sustain economic growth – focused mostly on improving GDP and GNI
Why GNI and GDP Differ in developing nations
because remittances are sent in and foreign investments also
PPP
Purchasing Power Parity = Number of units of foreign currency required to purchase an identical quantity of goods and services in the local market as $1 would buy in the USA
What kind of goods are cheaper in developing coutnries
Non-tradable goods
What does GNI/GDP not show?
Non-market economic activities – illegal – domestic services – informal cash – especially in developing nations – underestimates therefore more likely in developing nations
Income distribution is ignored – Inequality
GDP is a measure of flow, does not measure the stock of wealth of a county in each moment - Does not reflect environmental impacts – wealth has actually decreased if you chop down the amazon or dig out all the oil because you have no lost it
Beyond national accounts – implausible to suggest that growth of GDP and GNI means human progress
Sen and the Capabilities Approach
Income growth cannot adequately measure development, for it does not ultimately determine what individuals can be and do.
Functioning - Beings (being healthy, educated) and Doings (working, voting)
Capabilities - combination of functioning that are available to the individual (Income is essential but to convert it into functioning – education+ health may be required – different individuals can have completely different capabilities due to accessibility
HDI before 2011
a composite statistic (composite index) of life expectancy, 2/3s Literacy/ 1/3rd enrollment, and per capita income indicators, which are used to rank countries into four tiers of human development
Split into 3 sections, each number is worked out in the format - (Your literacy rate – Worst literacy rate), divided by (the best literacy – the worst literacy) All three are times together to make HDI
HDI after 2011
Countries aim to improve income and not the other two as it’s the easiest
You therefore get the same HDI as those with good education and health care but their income isn’t as high but they are more equal and more developed in that sense
Because money is worth more the poorer you are, a logarithmic function is used for the Income, so that a £10,000 increase to sierra leone makes a bigger difference that to the US
HDI Limitations
Equal weights are given embodying implicit normative judgement
Quality of education for example isn’t shown
New HDI is better but unclear that geometric mean is the best way to reflect development
HDI can also hide Inequalities and rights and freedom and happiness
R. Layard 2005
There is a positive correlation between income and self-reported happiness up to a level of about $15,000 to $20,000 – beyond this the association disappears
Factors such as political and religious freedom and social cohesion also associated with higher happiness = social capita
Limitation of R. Layard
2005
Correlation does not imply causality – little is known about what really causes happiness or life satisfaction
Self-reported life satisfaction has reporting bias
Traditional Economics
Concerned primarily with efficient growth of scarce resources
Assumes economic rationality and a purely self-interested oriented idea of decision making – therefore equilibrium will always be found
Poltical Economics
Concerned with the relationship between politics and economy
Emphasis on the role of power during economic decision making
