Section 5- Economic Development Flashcards
Indicators of living standards
The number of patients per doctor Enrolment in tertiary education
Adult literacy rate
Average food intake per person
MAIN- GDP per head Composite- HDI (Human Development Index) GPI (Genuine Progress Indicator)
Define Human Development Index (HDI)
a measure of living standards which takes into account income, education and life expectancy.
Define Genuine Progress Indicator (GPI)
a measure of living standards which takes into account a variety of indicators including income, leisure time, distribution of income and environmental standards.
Reasons why GDP is not the most accurate indicator?
- Real GDP is an average- Not everyone may benefit from a rise in the average income level.
- Higher output will obviously mean that more goods and services are being produced, but not all of these may add to people’s living standards- an increase in the output and consumption of tobacco
- Increases in real GDP per head figures may understate the products available to people due to undeclared economic activity and non-marketed output.
- May overstate it if the quality of output is falling.
- Living standards are also influenced by other factors besides the material goods and services produced. If output rises but working conditions deteriorate, the number of working hours increases, or pollution increases, people may not feel better off.
- Does not take into account differences in the distribution of income, the size of the informal economy, working hours and conditions, the composition and quality of output and environmental conditions between countries.
- Countries measure their output in terms of their own currency initially. The comparison, on the other hand, requires to be done in a common unit. There is a risk
that if an unadjusted currency is used, the comparison may be distorted. This is because the value of a currency can change on an hour to hour basis.
Advantage of real GDP
Takes into account differences in population size
Incorporates adjustments for inflation
Define Purchasing power parity
an exchange rate based on the ratio of the price of a basket of products in different countries.
Advantages of HDI
- Wider measure than real GDP per head- Includes GDP per head, life expectancy at birth, mean years of schooling and expected years of schooling.
- Countries are categorised into very high human development, high human development, medium human development and low human development.
- Shows that economic growth and human progress may not always match.
Disadvantages of HDI
Leaves out political freedom, the environment, differences in life expectancy and education, differences in income between males and females and between those living in rural and urban areas
Explain GPI
It starts with GDP.
It then adjusts for income distribution- the GPI rises when the poor receive a higher proportion of income and it falls when income becomes more unevenly distributed.
Makes a number of deductions (items which reduce living standards now or in the future) and additions (items which are thought to make a positive contribution to current or future living standards)
Causes of differences in living standards
Differences in income Differences in wealth Differences in education Differences in healthcare systems Differences in levels of pollution Differences in working hours
Causes of differences in income
Uneven holdings of wealth- Some wealthy households can live off the income their wealth generates
Differences in the composition of households Differences in the opportunity and ability to earn an income
Causes of differences in wealth
Differences in the assets inherited by people
Their savings- Wealth creates wealth
Entrepreneurial skills
Causes of differences in wages
Their skills
Qualifications
Number of hours for which they work
Define absolute poverty
a condition where people’s income is too low to enable them to meet their basic needs.
Define Relative poverty
a condition where people are poor in comparison to others in the country. Their income is too low to enable them to enjoy the average standard of living in their country.
Define Vicious circle of poverty
a situation where people become trapped in poverty.
Causes of poverty
Unemployment
Being in low-paid work
Falling ill
Growing old
Possible government policy measures to reduce poverty
- Improving the quantity and quality of education
- Promoting economic growth- increasing government expenditure or reducing the rate of interest
; demand –>jobs–>employment–>output–>higher living standards - Introducing or raising a national minimum wage.
- Encouraging more multinational companies to set up in the country - employment opportunities
- Providing benefits or more generous state benefits- for elderly, sick, and unemployed people
- Land reform- Those who rent or lease land may be reluctant to improve the fertility of the land. In such circumstances, making ownership of land more equal may increase output and living standards.
Controversy over unemployment benefits
Yes, it’ll enable them to avoid absolute poverty if there is a lack of jobs as it will not only raise the living standards of the unemployed but may also reduce unemployment by increasing aggregate demand.
But, if jobs are available, and the unemployed are not filling them because they receive a higher income on benefits, raising benefits will reduce the incentive to work
Measures to raise living standards
- Improving education and training will enhance the knowledge and earning potential of the people, and their ability to participate in the political system of the country.
- Reducing unemployment, as already mentioned, also raises living standards by increasing the quantity of available goods and services.
- Improving healthcare
- Increasing and improving the housing stock
- Improving the working conditions
- Reducing pollution
Government policies on the distribution of income and wealth
- Taxation (Progressive taxes)
- The provision of cash benefits
- The provision of free state education and healthcare
- Using labor and macroeconomic policies
Size of a country’s population can grow as a result of
- Birth rate exceeds the death rate
2. Net immigration