Standard of living

Question 1

What is the definition of SOL?

Answer 1

SOL refers to the well-being of an average citizen in a country. It involves material and non material well-being in which material well being refers to quantity of goods and services available to an average citizen and non material well being refers to quality of life of an average citizen which is measured by indicators such as number of working hours, PSI, stress levels etc.

Question 2

What are the government’s macro economic goals?

Answer 2

• E: full Employment
• E: sustainable and inclusive Economic growth
• P: Price stability

Question 3

Definition of economic growth?

Answer 3

refers to increase in output of an economy
-higher economic growth leads to rise in income, decrease in unemployment and increase ability to enjoy goods and services, increase in material SOL

Question 4

Definition of sustainable growth?

Answer 4

Refers to sustained economic growth without creating significant economic problems especially for future generation

Question 5

Definition of inclusive growth?

Answer 5

Refers to sustained eg that is broad based across economic sectors and provide employment opportunities for majority of population

Question 6

What are the indicators of economic growth?

Answer 6

-GDP (per capita)
Gross Domestic Product is the total money value of all final goods and services produced within a country’s geographical boundary during a period of time (divided by population)

-GNI
Gross national income = GDP + factor incomes earned by residents overseas - factor incomes earned by non residents in domestic country

Question 7

What is the difference between nominal and real national income?

Answer 7

Nominal national income refers to national income measured at current prices
Real national income refers to national income measured at constant prices (eliminates price changes due to inflation etc.)

% change in real GDP/GNI = % change in nominal GDP/GNI - % change in price level

Question 8

Difficulties in using income statistics to compare SOL and performance over time

Answer 8

• changes in price level ->use real GDP instead
• changes in size of population -> use real GDP per capita
• increase in real GDP per capita may be overstated as growth is not inclusive -> use Gini coefficient

Question 9

Difficulties in using income statistics to compare SOL over space

Answer 9

-different currencies and cost of living-> use GDP (PPP)-purchasing power parity- [ensures equal purchasing power of same amount of currency across countries]

Question 10

What is the definition of inflation?

Answer 10

defined as sustained increase of general price level in an economy

• General price level is represented by Consumer Price Index (CPI)
• inflation is measure by % change of CPI
• high inflation refers to over heating economy and if wages do not increase by the same amount as increase of prices it will lead to fall of M SOL, given level of income leads to lesser quantity of goods and services

Question 11

What is the indicator of inflation?

Answer 11

Consumer price index is the weighted average of prices of a basket of goods and services purchased by an average household in a period of time

• increase in CPI/GPL -> positive inflation rate
• faster increase in CPI/GPL -> rise in inflation
• slower increase in CPI/GPL -> fall in inflation, disinflation
• negative CPI -> fall in prices, deflation

Question 12

What is the definition of unemployment?

Answer 12

it refers to people who are able and willing to work but unable to find suitable jobs
unemployment rate= number of people unemployed/ labor force x100%

Question 13

What is labor productivity?

Answer 13

Is the output per man-hour

Question 14

What are some quantitative indicators for SOL?

Answer 14

Real national income per capita

Question 15

What are some qualitative indicators for SOL?

Answer 15

Leisure time, quality of healthcare, quality of environment

Question 16

What indicator to use to check income distribution?

Answer 16

It is the Gini coefficient, which measures income distribution within a country

• it is the ratio of the area between the line of perfect equality and observed Lorenz curve to the area between line of perfect equality and perfect in equality,
• the higher the gini coefficient, the more unequal the distribution
• when real GDP per capita is high but gini coefficient is high, it means that the high GDP is likely to be overstated
• affects NM SOL when lead to social instability
• also affects long term SOL when FDI pulls out for better prospects, which affect PEG,
• hence inclusive growth is impt for current and future SOL

Question 17

How does fall in GDP affect sol?

Answer 17

• fall in disposable income C.P., leads to lower ability to purchase goods and services, hence M SOL falls
• fall in tax revenue for government due to lower income and corporate profits, hence government less able to spend on education and healthcare and NM SOL falls

Question 18

How does inflation affect SOL?

Answer 18

inflation leads to a fall in real value of income and decrease purchasing power, decreasing M SOL

Question 19

How does HDI measure SOL?

Answer 19

Human development index is a composite indicator that measures life expectancy, literacy rate and real GNI per capita PPP