Cambridge CIE IGCSE Economics 5.1 Living Standards PDF

Head to www.savemyexams.com for more awesome resources Cambridge (CIE) IGCSE Your notes Economics 5.1 Living Standards Contents Indicators of Living Standards Living Standards & Income Distribution...

Head to www.savemyexams.com for more awesome resources Cambridge (CIE) IGCSE Your notes Economics 5.1 Living Standards Contents Indicators of Living Standards Living Standards & Income Distribution Page 1 of 5 © 2015-2024 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Indicators of Living Standards Your notes Real GDP Per Capita Economic development is the sustainable increase in living standards for a country, typically characterised by increases in life span, education levels, and income There are many measures of living standards Single indicators e.g. real gross domestic product/capita, number of doctors/1000 people; infant mortality rate; % of the population with access to clean drinking water Composite indicators such as the Human Development Index (HDI) The distinction between real, nominal and per capita GDP- In economics, the use of the word nominal refers to the fact that the metric has not been adjusted for inflation Nominal GDP is the actual value of all goods/services produced in an economy in a one-year period There has been no adjustment to the amount based on the increase in general price levels (inflation) Real GDP is the value of all goods/services produced in an economy in a one-year period - and adjusted for inflation For example, if nominal GDP is $100bn and inflation is 10% then real GDP is $90bn Real GDP per capita = rGDP / the population It shows the mean wealth of each citizen in a country This makes it easier to compare standards of living between countries: For example, Switzerland has a much higher GDP/capita than Burundi It is useful to know the rGDP/capita, however it has the following disadvantages It is a single indicator so provides very limited information It is an average so there may be significant poverty in many parts of a country that has a high rGDP/capita Examiner Tips and Tricks Page 2 of 5 © 2015-2024 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources When an exam question uses the phrase 'at constant prices' it is referring to real GDP. For example, a question may read, 'Explain what is meant by a rise in GDP at constant prices'. This requires you to define real GDP and then explain the rise. Your notes The Human Development Index (HDI) Developed by the United Nations, it is a combination of 3 indicators 1. Health, as measured by the life expectancy at birth e.g.in 2019 it was 81.2 years in the UK 2. Education, as measured by a combination of the mean years of schooling that 25 year olds have received, together with the expected years of schooling for a pre-school child 3. Income, as measured by the real GDP Each indicator is given equal weighting in the index The index ranks countries on a score between 0 and 1 The closer to 1, the higher the level of economic development and the better the standard of living A value of < 0.550 is considered low development. E.g. Chad 0.394 A value of 0.550-0.699 is considered medium development. E.g. El Salvador 0.673 A value of 0.700-0.799 is considered high development. E.g. Thailand 0.777 A value ≥ 0.800 is considered very high development. E.g. Norway 0.957 An Evaluation of HDI 1. It is a composite indicator and includes several important indicators of living standards 2. It includes rGDP/capita which is an average - so the HDI still does not take into account inequality in the distribution of income 3. It does not measure environmental damage or resource depletion 4. It does not take into account cultural differences or measure qualitative factors such as happiness or equal rights Examiner Tips and Tricks Both MCQ and structured questions often ask you to compare or analyse the HDI and GDP/capita of a country. On the whole, there is usually a positive relationship. Countries with a higher HDI value usually have a higher GDP/Capita. However, look for exceptions in the data presented - is the Page 3 of 5 © 2015-2024 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources GDP/capita rising while the HDI is falling? If so, one reason may be that the inequality in the country is worsening (rich getting richer and the poor, relatively poorer). Your notes Page 4 of 5 © 2015-2024 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Living Standards & Income Distribution Your notes Reasons for Differences in Living Standards and Income Distribution There are many reasons that cause differences in living standards and the income distribution within and between countries 1. Economic system: a mixed economy provides the highest quality of living standards. There is much debate on how much government planning there should be. However, countries in Scandinavia with a more mixed economic system score very highly on HDI and living standards. With completely free markets (unchecked capitalism), wealth inequalities increase exponentially. With planned economies, shortages abound 2. The Government: the values of a government influence their economic agenda, tax system and government spending. Governments are more easily held accountable by the citizens in countries with a low level of corruption 3. Corruption: significantly undermines quality of life and the standards of living 4. Tax system: most countries have a progressive tax system for corporate and personal income tax. However, there can be many indirect taxes which completely change the quality of life for the poorest households 5. Productivity levels: differences in skills result in difference in productivity and higher levels of productivity are rewarded with higher wages, which leads to a better standard of living 6. Size of the population: more densely populated countries or cities face more challenges. A larger population can mean higher tax revenues but at the same time, government expenditure on services is spread across more people often resulting in less government spending/capita 7. Education levels: These directly influence productivity and wages 8. Inflation: Tends to impact poorer households more as any increase in general price levels represents a larger absolute value of their wages when compared to wealthier households 9. Regional differences: Many countries have historically poor areas, as well as wealthier ones. Poverty in certain regions can be much higher 10. Personal freedoms: religious, economic, personal, political and civil freedoms improve the quality of life within a nation Page 5 of 5 © 2015-2024 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers