Flashcards · 2281 · Topic 5

Economic development flashcards

23 cards on Topic 5, subtopics 5.1 to 5.4. Pick a subtopic or study them all.

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Real GDP per head: Real GDP shared across the population (real GDP ÷ population). Real GDP is at constant prices, so only output changes move it.
Human Development Index (HDI): An index from 0 to 1 built from health (life expectancy), education (schooling) and income.
Nominal GDP 880 billion, price index 110, population 20 million. Find real GDP per head: Real GDP = 880 ÷ 110 × 100 = 800 billion. Per head = 800 billion ÷ 20 million = 40,000.
Two weaknesses of real GDP per head as a measure of living standards: It is an average that hides inequality; it leaves out unpaid and hidden (informal) activity; it ignores the environment, health and leisure.
Real GDP per head vs HDI: which is better?: HDI is broader (health, education and income), so it shows a rich country is not always developed. Both are averages that ignore how evenly income is shared, so use both plus distribution data.
Real GDP rises 3% and population rises 1%. Find the growth in real GDP per head: 1.03 ÷ 1.01 − 1 ≈ 1.98%. If both rose by the same percentage, GDP per head would not change.

Absolute poverty vs relative poverty: Absolute poverty: cannot afford basic necessities (food, clean water, shelter, clothing); measured by a fixed line, the cost of a basic basket. Relative poverty: much less income than most people in the same society; measured as a fraction of median income.
Median income is 18,000 and the relative poverty line is 60% of the median. Is a household on 10,500 relatively poor?: Line = 0.6 × 18,000 = 10,800. 10,500 is below it, so yes.
Four causes of poverty: Unemployment; low wages (low skills, weak bargaining power); illness (treatment costs, lost earnings); age (small pensions, dependent children).
Can relative poverty rise during a boom?: Yes, if the incomes of the poor grow more slowly than the median income. Absolute poverty is unlikely to rise in a boom.
Policies to reduce poverty, with one limit each: Growth: gains may go to the rich. Education: costly and slow. State benefits: quick, but cost taxpayers and may weaken work incentives. Progressive tax: may reduce effort. Minimum wage: may cut jobs if set above the market wage.
Every income in a country rises by 25%. What happens to absolute and relative poverty?: Absolute poverty falls, because more households can now afford the fixed basket. Relative poverty is unchanged, because the median and the relative line rise by the same 25%.

Birth rate and death rate: Birth rate: live births per 1,000 people (divide by population, multiply by 1,000). Death rate: deaths per 1,000 people (same method).
Optimum population: The population that gives the highest output per head. Fewer people is under-population; more is over-population.
Population 5,000,000; births 100,000; deaths 40,000; immigration 5,000; emigration 15,000. Find the total change: Natural change = 100,000 − 40,000 = +60,000. Net migration = 5,000 − 15,000 = −10,000. Total change = +50,000, i.e. 1.0%. New population 5,050,000.
Why are birth rates higher in many low-income countries?: Children work or support parents in old age; high child death rates; limited contraception; less education for women. Higher incomes, women in work and education, and pensions push birth rates down.
Population pyramid: wide base, narrow top vs narrow base, wide top: Wide base, narrow top: high birth rate, lower life expectancy; spending on schools and child health, need for jobs. Narrow base, wide top: low birth rate, long life; pension and healthcare costs, fewer workers per pensioner.

Name six factors behind differences in development between countries: Income; productivity; population growth; size of the primary, secondary and tertiary sectors; saving and investment; education; healthcare.
The low-income cycle: Low income → low saving → low investment → low productivity → low income. Education, healthcare, investment and lower population growth can each help break it.
Why does a large primary sector tend to keep incomes low?: Most workers are in low-value primary production with low productivity, and raw-material prices are volatile, so incomes are low and unstable.
GDP grows 4% and population grows 3%. What happens to output per head?: 1.04 ÷ 1.03 − 1 ≈ 0.97% a year. Fast population growth means output per head grows slowly, even when GDP grows quickly.
Economic development: A rise in living standards and wellbeing, which includes but is not limited to higher income.
Brain drain: Skilled people leaving a country for better pay elsewhere. It lowers the quality of the labour force left behind.