Measures of Development

Question 1

1. Economic Development

Answer 1

An increase in living standards in an economy.

Question 2

2. Indicators

Answer 2

An economy may be more developed if there is greater access to clean water, more mobile phones, greater access to the internet, higher energy consumption and a lower proportion of people working in agriculture.

Question 3

What is Gross National Income?

Answer 3

Gross National Income is Gross Domestic Product plus the net income from abroad.

Question 4

What does real gross national income per capita mean?

Answer 4

Whenever we use the word real it means that we remove the effects of inflation i.e. we hold prices constant. If we don’t remove the effects of inflation, an increase in GNI could be due to an increase in incomes or an increase in the price level. We need to know whether GNI has increased because incomes have increased or because price level has increased, and so we use real GNI instead. Real GNI will only increase if incomes increase as the effects of inflation have been removed.

Question 5

What are the three indicators of development used in the Human Development Index?

Answer 5

The Human Development Index measures education, health and living standards.

Question 6

What are the three measures used by the Human Development Index to determine the level of development based on the indicators?

Answer 6

To measure health, the HDI uses life expectancy at birth.
To measure education, the HDI uses average years spent in school.
To measure living standards, the HDI uses real GNI per capita.

Question 7

Advantages of HDI

Answer 7

The first advantage of the HDI is that it is holistic - it focuses on a range of indicators rather than just one.
The second advantage of the HDI is that it is good for comparing countries as it makes it easy to see which countries are most developed and which are least developed.

Question 8

Limitations of HDI

Answer 8

The first disadvantage of the HDI is that it can still be unreliable because there are many indicators that it does not use.

The second disadvantage of the HDI is that it ignores the distribution of development which can be measured by looking at the Gini coefficient.

Question 9

What does a low Gini coefficient mean?

Answer 9

A low Gini coefficient means that a country has a high level of income equality.

Question 10

Human Development Index

Answer 10

A measure of development which includes education (average years of schooling), health (life expectancy) and living standards (real GNI per capita).

Question 11

Advantages of the Human Development Index

Answer 11

It is easy to compare development between countries and it is holistic as it uses a range of factors.

Question 12

Disadvantages of the Human Development Index

Answer 12

It ignores the distribution of income and would be more reliable if it used more factors.

Question 13

Which of the following is likely to be the most useful way of measuring the level of economic development in an economy?

Answer 13

The Human Development Index gives us a better indication of the level of an economy’s development than purely financial measures like Gross Domestic Product. This is because the HDI takes into account a financial measure (Real GNI per capita at Purchasing Power Parity prices) but also looks at the quality of education and healthcare which are both incredibly important requirements for a higher standard of living (and therefore a higher level of development).

Question 14

How to measure HDI

Answer 14

To measure health, the HDI uses life expectancy at birth.
To measure education, the HDI uses average years spent in school.
To measure living standards, the HDI uses real GNI per capita

Question 15

What does the Human Development Index not account for?

Answer 15

The Human Development Index measures education, health and living standards. It does not take into account the distribution of income, i.e. it ignores income inequality.

Question 16

Which of the following is a disadvantage of the HDI and the IHDI?

Answer 16

The HDI and the IHDI may be unreliable as they don’t look at more indicators. For example, neither of them look at access to electricity.

Question 17

What else does the multidimensional poverty index measure?

Answer 17

The multidimensional poverty index looks at far more factors than the HDI or the IHDI. It then measures the number of people in poverty and the average intensity of that poverty.

Question 18

Inequality-Adjusted Human Development Index

Answer 18

The IHDI takes the normal HDI and then adjusts it to account for different levels of inequality. If the IHDI is below the HDI, then there is inequality.

Question 19

Multidimensional Poverty Index

Answer 19

Measures education, health and living standard using 10 different indicators. It measures the number of people in poverty and the average intensity of poverty.

Question 20

How does low productivity affect growth?

Answer 20

Low productivity will shift the LRAS to the left which will limit economic growth.

Question 21

How does low investment affect growth?

Answer 21

Low investment will decrease AD meaning the AD curve will shift to the left. Low investment also means that firms aren’t investing in new capital and so the productivity of capital will decrease and the LRAS will shift to the left.

Question 22

Chain of reasoning for low human capital (shit education)

Answer 22

Low human capital - Low productivity - Keeps LRAS to the left - Limits real GDP - Limits economic development

Low human capital - Low productivity - Low incomes - Less income tax revenue - Less government spending on development - Limits real GDP - Limits economic development

Question 23

Effects of poor education

Answer 23

When people receive a poor education, they have low levels of human capital which makes them less productive.

Question 24

Chian of reasoning for increased education

Answer 24

High human capital - Higher productivity - Shifts LRAS to the right - Increases real GDP - Increases economic development

Question 25

What is a possible short run impact of children leaving the vanilla farms in order to study at school?

Answer 25

Building schools in remote areas can mean that children move from working on the farms to being in school. This means that they are no longer able to help their families on the farm which means they will produce less. This will then decrease their incomes.

Question 26

If the standard of education is poor, students will leave school with:

Answer 26

A low standard of education means that students will not acquire the knowledge or skills they need. In other words, they will have low human capital meaning there will not be a significant increase in worker productivity.

Question 27

Human Capital

Answer 27

When workers don’t have the necessary knowledge, skills or assets to be productive.

Question 28

How will an increase in productivity affect economic growth and development?

Answer 28

Improved infrastructure - More productivity - Shifts LRAS to the right - Increases real GDP - Increases economic development

And

Improved infrastructure - Increases productivity - Decreases costs - Right shift of SRAS - Decreases prices - Increases competitiveness - More profit - More corporation tax revenue - More government spending on development.

Question 29

How can countries promote FDI?

Answer 29

A country can promote FDI by either reducing corporation tax which means that firms can keep more of their profit or by reducing wage costs which will enable firms to make more profit .

Question 30

Which of the chains of reasoning below show how poor infrastructure can limit economic development?

Answer 30

Poor infrastructure → Increases costs → Left shift of SRAS → Increases prices → Decreases competitiveness → Less profit → Less corporation tax revenue → Less government spending on development.

Question 31

Which of the chains of reasoning below show how poor infrastructure can limit economic growth?

Answer 31

Poor infrastructure → Low productivity → Keeps LRAS to the left → Limits real GDP → Limits economic growth

Question 32

Malawi is increasingly struggling to provide enough electricity for firms and consumers. The President has announced significant investment in the infrastructure required to produce more electricity.

How is the improvement of infrastructure likely to affect Malawi?

Answer 32

The two chains of reasoning here are just the opposite of those for poor infrastructure:

Improved infrastructure → Decreases costs → Right shift of SRAS → Decreases prices → Increases competitiveness → More profit → More corporation tax revenue → More government spending on development.

Improved infrastructure → Higher productivity → Shifts LRAS to the right → Increases real GDP → Increases economic growth

Question 33

Which of the following shows an impact of low productivity on the Kenyan economy?

Answer 33

Low productivity will keep the LRAS curve to the left which will limit growth in real GDP and therefore limit economic growth and development.

Question 34

Two important reasons for poor health in developing countries are

Answer 34

Two important reasons for poor health in developing countries are poor healthcare and poor sex education.

Question 35

Which of the following shows a likely consequence of children staying out of school?

Answer 35

Low human capital

Question 36

Poor health chain of reasoning

Answer 36

Poor health - Low human capital - Low productivity - Low incomes - Less income tax revenue - Less government spending on development - Limits real GDP - Limits economic development

Poor health - Low human capital - Low productivity - Keeps LRAS to the left - Limits real GDP - Limits economic development

Question 37

Access to education means that children will grow up with

Answer 37

Access to education means that children will grow up with higher levels of human capital .

Question 38

Which of the following shows a likely impact of an increase in workers’ productivity as a result of health improvements?

Answer 38

Improved health → Higher productivity → Decreases costs → More profit → More corporation tax revenue → More government spending on development.

Improved health → Higher productivity → Shifts LRAS to the right → Increases real GDP → Increases economic development

Question 39

Which of the following chains of reasoning shows a likely impact of poor health on economic development?

Answer 39

Poor health → Fewer kids in school → Low human capital → Low productivity → Keeps LRAS to the left → Limits real GDP → Limits economic development

Poor health → Fewer kids in school → Low human capital → Low productivity → Low incomes → Less income tax revenue → Less government spending on development → Limits real GDP → Limits economic development

Question 40

What will poor quality education and healthcare cause?

Answer 40

Poor quality education and healthcare will lead to low human capital, where workers don’t have the skills or knowledge needed to be productive.

Question 41

With a growing population, schools and hospitals have to…

Answer 41

With a growing population, schools and hospitals have to cater for more and more children and so the quality of education and healthcare will begin to decrease. This will then start to decrease human capital.

Question 42

Population growth constrains growth and development because:

Answer 42

Population growth constrains growth and development because:

1. Parents stay at home to look after even more children, so they can’t develop their careers , which means that they often end up earning lower incomes.
2. Schools and hospitals can become overrun. This starts to reduce the quality of education, which can lower human capital and reduce productivity.

Question 43

Two important reasons for poor health in developing countries are

Answer 43

Two important reasons for poor health in developing countries are poor healthcare and poor sex education.

Question 44

Which of the following shows a likely impact of an increase in workers’ productivity as a result of health improvements?

Answer 44

Improved health → Higher productivity → Decreases costs → More profit → More corporation tax revenue → More government spending on development.

Improved health → Higher productivity → Shifts LRAS to the right → Increases real GDP → Increases economic development

Question 45

What is the likely impact of better human capital for women?

Answer 45

Better human capital for women means that they will be more productive and so they can become more career-focussed and earn higher incomes. This often means that they have fewer children and so the birth rate decreases. This reduces some of the problems of high population growth outlined in the previous video, such as overcrowding of schools and hospitals.

Improved education → Higher human capital → Higher productivity → Higher incomes → Decrease birth rate → Higher quality education → Increases economic development

Question 46

What are the two main ways that education can help combat high rates of population growth?

Answer 46

Improved education → Higher human capital → Higher productivity → Higher incomes → Decrease birth rate → Higher quality education → Increases economic development

Improved sex education → Decrease birth rate → More time to focus on education/career → Increases incomes → Increases economic development