Indicators of Living Standards | Economics for GCSE/IGCSE - Year 11 PDF Download

Real GDP Per Capita

• Economic development denotes the sustainable enhancement of living standards within a country, commonly marked by improvements in life expectancy, educational attainment, and income levels.
• Various metrics gauge living standards, including single indicators like real Gross Domestic Product (GDP) per capita, the density of doctors per 1000 people, infant mortality rates, and the percentage of the population with access to clean drinking water. Additionally, composite indicators like the Human Development Index (HDI) provide a comprehensive measure of living standards.

The Distinction Between Real, Nominal & Per Capita GDP

• In economics, the term "nominal" signifies that a metric hasn't been adjusted to account for inflation.
• Nominal GDP represents the actual value of all goods and services produced within an economy over a one-year period, without any adjustment for inflationary effects.
• Real GDP, on the other hand, reflects the value of all goods and services produced within an economy over a one-year period, adjusted to account for inflation.
  • For instance, if nominal GDP amounts to $100 billion and inflation stands at 10%, real GDP would amount to $90 billion.
• Real GDP per capita is calculated as real GDP divided by the population, providing an indication of the average wealth of each citizen in a country.
  • This facilitates comparisons of living standards between countries.
    • For instance, Switzerland boasts a much higher GDP per capita than Burundi.
• While real GDP per capita serves as a useful indicator, it has certain drawbacks:
  • It's a singular measure, offering limited insights.
  • Being an average, it may mask significant poverty in regions of a country with a high GDP per capita.

Human Development Index (HDI)

• Developed by the United Nations, the index combines three key indicators:
  • Health, represented by life expectancy at birth. For instance, in 2019, life expectancy in the UK was 81.2 years.
  • Education, measured by the average years of schooling for 25-year-olds and the expected years of schooling for pre-school children.
  • Income, gauged by real GDP.
• Each indicator carries equal weight in the index.
• The index assigns countries a score between 0 and 1:
  • Closer to 1 indicates higher economic development and a better standard of living.
  • A score below 0.550 is deemed low development, exemplified by Chad's score of 0.394.
  • Scores ranging from 0.550 to 0.699 signify medium development, as seen in El Salvador's score of 0.673.
  • Scores between 0.700 and 0.799 indicate high development, illustrated by Thailand's score of 0.777.
  • Scores equal to or above 0.800 denote very high development, as demonstrated by Norway's score of 0.957.

An Evaluation of HDI

• The Human Development Index (HDI) is a composite indicator that encompasses various crucial measures of living standards.
• While it incorporates real GDP per capita, which provides an average, the HDI does not fully consider income distribution inequality.
• The HDI does not gauge environmental degradation or resource depletion.
• Moreover, it does not consider cultural disparities or assess qualitative aspects such as happiness or equal rights.