- One of the key methods to analyse a country’s economic growth is to
measure the living standards of that country.
- The human development index is an indicator of living standards which
takes into account income, education and life expectancy.
- The genuine progress indicator is an indicator of living standards taking
into account various other indicators such as income, income distribution and leisure time.
- Read GDP her head can be used to compare living standards as well as
living standards between different countries.
- However the drawback is that everyone may not benefit from a rise in gdp per capita as the wages of the poor may increase by only a tiny amount or income inequality may increase or the population may increase more than the gdp.
- Even though output is increasing, it may not increase or potentiallyworsen the living standards of the economy. For example increase in [production of tobacco and guns may increase the number of deaths in the economy].
- GDP won’t include the products in the informal sector of the economy
which is a disadvantage for the poorer countries.
- Increase in GDP may increase the working hours of people which could
worsen the quality of output and demotivate the workers.
- GDP takes into account the population as well as it is adjusted for inflation
so it can be used to compare living standards between countries however it has its drawbacks as well.
- Differences in income inequality, size of the informal economy, working
hours and conditions and environmental conditions between countries
could also cause differences in living standards, for example country A
may have a greater gdp than country B but country B may have better
working conditions and a lower crime and population growth rate than country A.
- A practical problem in comparing the gdp between different countries is
that each country calculates its gdp in its own currency, however with the
help of purchasing power parity this problem can be solved.
- Purchasing power parity is an exchange rate based on the ratio of theprice of a basket of goods in different countries , this ratio is based on the
purchasing power of the countries, so a strong economic nation like theUS will have a lower ratio whereas a relatively weaker economic nation like Kenya would have a higher ratio.
- The human development index [HDI] measures a greater number of factors and hence is a wider measure for indicating living standards than gdp/gdp per capita.
- The additional indicators that HDI takes into consideration are life
expectancy at birth and education which is measured by the average and expected years of schooling.
- On basis of their HDI values, countries are divided into four categories
which are :
1- very high human development
2- high human development
3- medium human development
4- low human development
- However, HDI has its disadvantages as well; it doesn’t take into account
political freedom ,environmental conditions, life expectancy, differencesin income between people and men and women and differences in education between people.
- Few other reasons why living standards differ between countries or
between different states or counties in a country are differences in
income, wealth, education , quality of healthcare, pollution levels and
working hours.
Bibliography:
Course material is referred from IGCSE Economics text book.
measure the living standards of that country.
- The human development index is an indicator of living standards which
takes into account income, education and life expectancy.
- The genuine progress indicator is an indicator of living standards taking
into account various other indicators such as income, income distribution and leisure time.
- Read GDP her head can be used to compare living standards as well as
living standards between different countries.
- However the drawback is that everyone may not benefit from a rise in gdp per capita as the wages of the poor may increase by only a tiny amount or income inequality may increase or the population may increase more than the gdp.
- Even though output is increasing, it may not increase or potentiallyworsen the living standards of the economy. For example increase in [production of tobacco and guns may increase the number of deaths in the economy].
- GDP won’t include the products in the informal sector of the economy
which is a disadvantage for the poorer countries.
- Increase in GDP may increase the working hours of people which could
worsen the quality of output and demotivate the workers.
- GDP takes into account the population as well as it is adjusted for inflation
so it can be used to compare living standards between countries however it has its drawbacks as well.
- Differences in income inequality, size of the informal economy, working
hours and conditions and environmental conditions between countries
could also cause differences in living standards, for example country A
may have a greater gdp than country B but country B may have better
working conditions and a lower crime and population growth rate than country A.
- A practical problem in comparing the gdp between different countries is
that each country calculates its gdp in its own currency, however with the
help of purchasing power parity this problem can be solved.
- Purchasing power parity is an exchange rate based on the ratio of theprice of a basket of goods in different countries , this ratio is based on the
purchasing power of the countries, so a strong economic nation like theUS will have a lower ratio whereas a relatively weaker economic nation like Kenya would have a higher ratio.
- The human development index [HDI] measures a greater number of factors and hence is a wider measure for indicating living standards than gdp/gdp per capita.
- The additional indicators that HDI takes into consideration are life
expectancy at birth and education which is measured by the average and expected years of schooling.
- On basis of their HDI values, countries are divided into four categories
which are :
1- very high human development
2- high human development
3- medium human development
4- low human development
- However, HDI has its disadvantages as well; it doesn’t take into account
political freedom ,environmental conditions, life expectancy, differencesin income between people and men and women and differences in education between people.
- Few other reasons why living standards differ between countries or
between different states or counties in a country are differences in
income, wealth, education , quality of healthcare, pollution levels and
working hours.
Bibliography:
Course material is referred from IGCSE Economics text book.