Living standard indicators and types of economies

Question 1

What is Real GDP per capita?

Answer 1

Calculated by dividing a country’s total GDP by its population

Question 2

What are the weaknesses of using Real GDP per capita to classify developing and developed countries?

Answer 2

1. Average figure, some people may experience a fall in income, worsening
2. undeclared economic activity
3. types of product, increase in police force to cope with crime
4. capital goods VS consumer goods, PPC frontier
5. quality?

Question 3

Evaluation of weaknesses of using GDP

Answer 3

• even if more consumer goods produced, desire rises at faster rate?
• quality tends to rise over time

Question 4

What is HDI?

Answer 4

A composite measure of living standard, that includes GNI per head, education and life expectancy

Shows that people’s welfare is not only influenced by the goods and services available to them, also ability to live a better life and to acquire knowledge

Question 5

Limitations of using HDI

Answer 5

1. equal weightings, different degree of deprivation
2. suffer from the limitations of GNP
3. not consider other aspects of standard of living, e.g. inequality, poverty

Question 6

What is MEW?

Answer 6

A broader measure of living standards and economic development than real GDP per capita and HDI, since it includes both factors that improves and reduces standard of living

e.g. leisure hours, unpaid work, environmental cost

Question 7

What is MPI?

Answer 7

a composite of deprivation in terms of the proportion of households that lack the requirements for a reasonable standard of living, has 10 indicators in 3 categories

Question 8

What are the indicators and categories in MPI?

Answer 8

Health

• child mortality
• nourishment

Education

• no. of years in school
• school attendence

Living standard

• cooking fuel
• asset
• floor space
• safe drinking water
• sanitation

Question 9

What is a developed economy?

Answer 9

high GDP per capita
high standard of living
high level of productivity
mature market

Question 10

What is a developing economy?

Answer 10

low GDP per head
lower productivity
lower standard of living
immature market

Question 11

Classification of economies in terms of its economic structure

Answer 11

Developed economy - concentrate on secondary and tertiary, main contributor to GDP, resources shift away, productivity higher, output higher

Developing economy - opposite

Emerging economy - transitioning

Question 12

Classification of economies in terms of population structure

Answer 12

Developed:
aging population, lower labour participation rate (education), high dependency ratio (old on young)

Developing
birth rate>death rate
need children support family
low costs of raising children
high infant mortality rate
high dependency ratio (low ave age, non productive)

Question 13

Classification of economies in terms of income distribution

Answer 13

Developed
more evenly distributed income, less inequality

Developing
less equity, more inequality

Question 14

Classification of economies in terms of external trade

Answer 14

Developed:
export a range of products, export manufactured products, ToT moves in their favour (Prebisch-Singer hypothesis)

Developing
export mainly primary products, YED inelastic, vulnerable to supply shocks, subsidies by USA and europe put downward pressure on global agricultural prices

Question 15

What is an emerging economy?

Answer 15

when a developing economy is moving towards a more developed economy, with higher standard of living, more investment opportunities, rapid growth rate and higher efficiency.