SOL and Macro Indicators Flashcards
What are the 3 key macroeconomic goals?
Sustainable & Inclusive growth
Low unemployment
Price stability
What are the indicators for sustainable and inclusive growth?
Real GDP/GNI
HDI
Gini coefficient
What is the indicator for low unemployment?
Unemployment rate
What is the indicator for price stability?
Inflation rate
Definition of SOL
Standard of living refers to the well-being of an average person in the economy.
Definition of nominal GDP
The total monetary value of all final goods and services produced within the geographical boundaries of a country in a given period of time, usually one year.
How does higher nominal GDP affect SOL?
A higher GDP indicates that more goods and services are produced in the economy and are
thus available for consumption.
This means that households have a higher purchasing power and will be able to purchase
more goods and services.
This increases their satisfaction and utility (SI unit for happiness) and hence leads to higher
material (quantitative) standard of living.
Definition of real GDP per capita
Real GDP per capita is the level of GDP adjusted for both inflation rate
and population size.
How is real GDP per capita a better indicator than nominal GDP?
Real GDP takes into account the effects of inflation and it considers the change in purchasing power given the change in the inflation rate, making it a more accurate measure of the actual purchasing power of money income
Hence, it is a better indicator than nominal GDP and it is better able to measure the amount of goods and services that can be consumed, leading to a more accurate measurement of the level of standard of living enjoyed
How does real GDP per capita affect SOL?
With higher real GDP per capita, the average national income and hence disposable income for the citizen on the average is higher. This translates to higher purchasing power for the average citizen which increases the average
citizen’s ability to purchase and consume more goods and services.
This increases their satisfaction and utility and hence leads to higher
material standard of living.
Definition of GNP
The total money value of all final goods and services produced by the nationals of a country,
irrespective of whether they are living in the country or abroad, in a given period of time, usually
one year.
How does higher GNP affect SOL?
Higher GNP indicates that more goods and services have been
produced by factors of production owned by citizens of the country It also suggests greater national income and hence disposable income earned by citizens,
both domestic and abroad.
This translates to higher purchasing power for the average citizen which increases the average
citizen’s ability to purchase and consume more goods and services.
This increases their satisfaction and utility and hence leads to higher
material standard of living.
What are the differences between GDP and GNI?
GNI takes into account the nationality of the owners of the factors of production whereas GDP focuses on economic activity
within territorial boundaries. GNI = GDP + Net Factor Income from Abroad
Definition of inflation rate
Inflation is defined as the sustained increase in the general price level of a country.
How does an increase in inflation rate affect SOL?
A sustained period of positive inflation rate means that the general price level and cost of living have increased, ceteris
paribus. If household incomes do not rise proportionately, consumers now can afford fewer goods and
services with the same level of income. This reduction in purchasing power lowers the
standard of living, as individuals may need to cut back on non-essential expenses like food, housing, and healthcare. This hence lowers the satisfaction and utility thereby worsening the material standard of living.
Definition of unemployment rate
The unemployment rate is the percentage of the labour force that is jobless and actively
seeking employment.
How does a higher unemployment rate affect SOL?
A high unemployment rate is associated with a lower degree of labour resource utilisation , and hence less production of goods and services. With less production of
goods and services, less wants can be satisfied and thus material standard of living is likely to
be lower. A higher unemployment rate also means that there would be more individuals in the economy
who are unemployed and not earning an income. This translates to lower purchasing power for the average citizen which decreases the average
citizen’s ability to purchase and consume more goods and services. This decreases their satisfaction and utility and hence leads to lower
material standard of living.
Define Gini Coefficient
The Gini coefficient is a measure of income inequality within a population, ranging from 0
to 1, and it represents the income
distribution of a nation’s residents. The Gini coefficient ranges from zero to one, where 0
represents perfect equality and 1 represents perfect inequality.
How does an increase in the Gini coefficient affect the SOL?
Generally, if the national income is more equally distributed and not concentrated among a
small group, the access to goods and services would be more equal throughout the economy.
Most citizens are likely to experience higher satisfaction as they have more equal abilities to
enjoy the goods and services available in the economy.
On the other hand, if Gini coefficient is high, it could mean that majority might not have access
to adequate resources such as healthcare, education or housing.
What are the factors of non-material SOL?
Leisure hours
Quality of environment
Quality of health(Life expectancy)
Quality of education(Literacy rate)
