Development Flashcards
Economic Growth
Increase in the value of goods and services produced by an economy over time
Economic Development
Process that seeks to improve the economic well-being and quality of the people in the country
Sustainable development
meets the needs of the present without compromising the ability of future generations to meet their own needs
Primary sector
economies that are more reliant on farming and mining
Secondary sector
economies that are more reliant on manafacturing
Tertiary sector
economies that specialize in services
Developed economies
Economy that has a high level of economic activity
Developing economies
Countries that have not seen any significant growth due to them being reliant on agriculture etc….
Emerging economies
Countries that have had massive economic growth due to advances in technological sectors
per capita income
the value of the goods and services available, per person, not just transforming economies.
examples of sustainable development
social progress, effective protection of the environment, prudent use of natural resources, maintenance of high and stable levels of economic growth
Why might economic growth not lead to sustainable development
increased extraction of primary resources, move from primary to secondary structure (cheap labour), moving to tertiary structure (urbanisation, increase car use, damaging habitats, changing diets)
solution to economic growth without harming the environment
offer incentives to lead producers/consumers to change their behaviour
can we have economic growth without harming the environment - it depends
Government failure (corruption/inexperience), economic properties (developed may prioritise it), economic situation (priorities)
Can we have economic growth, without harming the environment
MNCs invest in infrastructure, MNCs create employment, MNCs using renewable resources
What are the indicators of development
per capita income, life expectancy, education, the extent of poverty
What does HDI measure
economic development in: per capita income, health and education
What does a HDI score of 1 mean
complete development
Life expectancy factors
food supplies, war, disease and natural disasters
Features of growth
just uses GDP, measure income growth, quantitative, indicator for developed countries
Features of development
uses GDP and other measures(life expectancy,literacy), quality of life, qualitative, wider, indicator for devloping countries
Growth increase income/spending in a country
higher demand, higher employment, healthier diets, housing, sanitation
Human development correlated with GDP
life expectancy (positively), child mortality (negatively), happiness (positively), education (positively)
Economic growth may not lead to sustainable development
depletion of natural resources, multinationals exploiting short-term profits, government failure, worse work life balance, inequalities
What does a gini coefficient of 0 mean
income/wealth shared equally
Features of income
flow of money going to factors of production e.g. wages, rent, interest, profits
Features of income
flow of money from the factors of production e.g. wages, rent, interest, profits
Features of wealth
value of a stock of assests e.g. ownership of property, shares
Main types of household wealth
physical, pension, housing, financial
where is the poverty line
60% of median income
how is inequality of income and wealth measured
by the share of national income going to different groups
What does the lorenz curve show
distribution of income/wealth
disadvantage of lorenz curve
can not compare a wide range of countries
disadvantage of gini coefficient
not great at analysing extremities of inequality
Inequality effect on AD/SRAS/LRAS/economic development
Negatively effects them
Absolute poverty
living on less than $1.90 a day
features of absolute poverty
lack of food, lack of sanitation facilities, lack of shelter, education and information
features of relative poverty
struggle to reach minimum accepted standard of living, no luxuries, refers to conditions which are suitabe to the society they live in
Causes of absolute poverty
vulnerability to natural disasters, national debt, war & political instibility, history, discrimination and social inequality
Causes of relative poverty
inequality, inheritance, higher levels of structural and long-term unemployment, regressive taxes, falling relative value of state benefits
Extreme poverty effect on AS and AD
both shift left
Why is inequality a good thing
encourages ambition if most talented earn more, lead to trickle down effect
What is the trickle down effect
richest gain an increase in wealth, they will spend proportion of this extra welth causing an increase in demand for goods and services, causing higher employment and rise in wages. Higher wages may also cause a multiplier effect
How can a government reduce inequality
progressive taxation policies, means-tested benefits system, improve labour mobility, more government spending on merit goods
What does the Phillip’s curve show
relationship between unemployment and inflation
What is NRU
natural rate of unemployment, which is the fixed long term rate, changes in employment revert back to NRU.
What is money illusion
Individuals usually tend to view their income and wealth in nominal terms. causes a diagonal move on Phillip’s curve.
What are adaptive expectations
if inflation increases n the past year, people will expect a higher rate of inflation in the next year, causes phillips curve to shift right. Higher expectations, worse trade off between inflation and unemployment
What determines NRU
made from frictional and structural unemployment
How can you shift NRU left
supply side policies
What is wealth
it is a stock, can be inherited/built up over time.
How has the government tried to achieve a more even distribution of income
progressive taxation systems that are used to pay for generous benefit systems helps ensure there is little absolute poverty
How do the causes/consequences of poverty depend on the type.
absolute poverty is often caused by the nature of developing and emerging countries. (e.g. limited access to key resources, government failure or factors unique to a country). Relative poverty could be from inequality/government failure
How is relative poverty and inequality linked
High income inequality will create more households in relative poverty.
Consequences of absolute poverty
Social problems e.g. crime. The country not producing at its full potential (PPF diagram), this is because those in poverty are less likely to prioritise education and be more concerned with short-term objectives like earning a basic income. Could be exacberated by a ‘brain drain’ from the country as many of the brightest/fittest members of the community look to emigrate.
How does absolute poverty effect FDI
High levels of poverty may make it more difficult for a country to effect FDI because foreign MNCs may not feel that the labour force are capable of meeting their requirements.
How does labour market trends cause income inequality
the more flexible the labour market (easier to hire and fire), the greater income inequalities tend to be. Countries with strong trade union presence are often more equal as unions fight for a smaller pay gap.
How do taxation policies cause income inequality
the more emphasis there is on progressive taxation, the less the inequalities. Countries with more proportional or regressive systems tend to have higher inequalities
How does government intervention cause income inequality
countries like the UK and the Scandinavian countries have strong welfare states and wide access to free (at the point of use) health and education systems. In countries like the USA, these systems are not as robust so there may be more inequality
How does wealth inequality cause income inequality
Wealthier households can invest their wealth in more profitable ways (e.g. shares/pension schemes/property for renting out- therefore earning more income, often at the expense of less wealthy households.
What are the causes of wealth inequality
income inequality, government failure, cultural factors - e.g. in the UK, the class system meaning that ownership of large amounts of land and property is in relatively few hands.
Consequences of inequality/relative poverty
i) social problems- e.g. crime, structural unemployment, uneven standard of infrastructure/housing/opportunities etc.
ii) economic problems- can lead to low worker morale, less incentive to work (rewards are seen to go elsewhere); low productivity; therefore, lower economic growth, less government revenue etc. In short, inequalities can be self-perpetuating.
How is the inequalities dependent on
size of the inequalities, comparisons with similar, opportunity cost of reducing inequalities (Laffer Curve?); economic position (being relatively poor in the UK may be better off than somebody in the top quintile of a developing country.
Why is there a perfectly elastic (horizontal) section of the LRAS
Keynesians believe there are sticky prices/sticky wages, suggesting that prices/wages get stuck at a certain low level and increases in AD won’t then increase price level.
What do neo-classical economies believe about the Phillip’s curve
Believe that economies are totally flexible. SRAS is upward sloping and LRAS is vertical. (no sticky prices/wages) so believe there is NRU.
What is the difference between short run and long run phillips curve
SRPC is the same trade-off as traditional Phillip’s curve but neo classical economists believe there is no point in doing this as unemployment will return back to NAIRU in the long run and price level has just increased in the long-run.
What is NAIRU
non accelerating inflationary rate of unemployment. NAIRU=NRU
What does LRPC show
there is no relationship between unemployment and inflation rate
Phillip’s curve analysis
In the short run the government believe they can gain popularity by reducing unemployment below NRU. Unemployment shifts left but wages increase because of the temporary increase in demand for labour. As wages rise more workers join the labour force, not realizing that the increase in wages is actually illusion (money illusion). Higher wages create higher prices, when workers realise they are no better off they may again leave the workforce. Also, at higher wage levels companies see less benefit to hiring workers. Both of these factors mean unemployment increases and SEPC shifts right.
What diagrams can also have the same analysis as the phillips curve
A PPF and SRAS/LRAS diagram showing a positive output gap
What is the movements in the Phillip’s curve the same as
Movement along SRPC - changes in AD.
Movement to a new SRPC - changes in SRAS
Movement of LRPC is same as movement of LRAS
Evaluating the usefulness of the Phillip’s curve
Depends on the economic school. Keynesians believe that cyclical unemployment can be permanently reduced/eliminated by policies. This would permanently reduces unemployment rates, albeit with some inflation. Neo-classical economists believe any reduction in unemployment will only be temporary. In the long-run, unemployment will always revert back to NRU. There is no point trying to reduce unemployment as prices are only pushed up. Ultimately, depends upon if you believe in sticky wages/prices, if you do tackle unemployment rates.
