Unit 5

MEASURES OF LIVING STANDARD

GDP per capita
Human Development of Index (HDI):- A measure used by UNDP with three different index;
- Income index; measures Gross national income of the country
- Education index; measures the average years of schooling of a country
- Health index; measures the life expectancy(average number of years a person can live)
- Has a value between 0 to 1
- 0 to 0.4 means low human development. 0.5 means medium and 0.6 to 1 means high human development

LIMITATION OF HDI

Though it is better than GDP
Inequality is not included
External costs ignored
Different exchange rates could make difference

OTHER MEASURES OF LIVING STANDARD

Education
Health
Housing
Infrastructures
Doctors per patient

POVERTY

POPULATION

Total number of people living in a country in a given period of time

Census: – The official count of population

Demography: – Study of population

Household population: – The total number of people living in one household in a given period of time

Life expectancy: – Average number of years a person can live from birth to death

Infant mortality rate: – Average number of children dies at the time of birth or before their first birthday.

FACTORS INFLUENCING POPULATION GROWTH

DISTRIBUTION OF POPULATION

POPULATION PYRAMID

A diagram which shows number of male and female in different age groups of a population in a country during a given period of time

DIFFERENT STAGES OF POPULATION

AGEING POPULATION

This is where people are generally living longer
The average age of people in a country increases
More older people as a proportion of the population

CONSEQUENCES OF AGEING POPULATION

Increase need for health care
Tax revenue used to provide health care could have been used for another purpose/opportunity cost
Increase cost of pensions
Place a tax burden on workers
Increase the dependency ratio
Proportionally more non-workers will have to be supported by proportionally fewer workers reduce mobility of the labour force
Older workers may be less geographically/ occupationally mobile
A rise in the average age from a young age
May reduce dependency ratio
Older workers may be more experienced leading to higher productivity
Ageing population may not increase dependency ratio/cost of pensions
If retirement age is raised longer life expectancy raise living standards

CONSEUQNCES OF POPULATION CHANGES

Unit 6

INTERNATIONAL SPECIALISATION

CURRENT ACCOUNT OF BALANCE OF PAYMENT

Structure of current account

Visible trade: – Records trade in goods such as oil, steel etc. It is calculated by subtracting visible imports from visible exports. If exports of goods are greater than imports, visible trade is in surplus. If imports of goods are greater than exports, visible trade is in deficit. This is sometimes called trade balance.
Invisible trade: – Records trade in services such as tourism, healthcare etc. It is calculated by subtracting invisible imports from invisible exports. If exports of services are greater than imports, invisible trade is in surplus. If imports of services are greater than exports, invisible trade is in deficit.
Income flows: – Inflows and outflows of income from employment and investments are recorded. Examples could include wages, salaries, bonus, rent, profits, dividends, interest etc.
Current transfer flows: – records the value of aids, donations received from other countries and sent to other countries.
An inflow in the balance of payment is sometimes referred as a credit item
An outflow in the balance of payment is sometimes referred as a debit item

CURRENT ACCOUNT DEFICIT

Occurs when the combined value of the four sections(goods, services, incomes, aids) of the debit(outflow of money) side is greater than the combined value of the four sections of the credit(inflows of money) side in the current account.
A current account deficit may occur without a deficit in all the four sections

CAUSES OF CURRENT ACCOUNT DEFICIT

Lack of factor endowments
Economic growth in the country
Lower growth in other countries
A higher exchange rate

CONSEQUENCES OF CURRENT ACCOUNT DEFICIT

Spending beyond their means
Imported inflation
Lower output
Lower employment and income
Lower pressure on exchange rate

HOW TO OVERCOME CURRENT ACCOUNT DEFCIT

To reduce imports, use trade barriers
Subsidies to encourage domestic production
Lowering the exchange rate to make exports cheaper and imports expensive
Encouraging MNC’s and foreign investment
SEZ ( Special Economic Zone)

CURRENT ACCOUNT SURPLUS

Occurs when the combined value of the four sections(goods, services, incomes, aids) of the credit(inflow of money) side is greater than the combined value of the four sections of the debit(outflows of money) side in the current account.
A current account surplus may occur without a surplus in all the four sections

CAUSES OF CURRENT ACCOUNT SURPLUS

Better factor endowments
Lower Economic growth in the country
Higher growth in other countries
A lower exchange rate

CONSEQUENCES OF CURRENT ACCOUNT SURPLUS

Foreign currencies
Higher output
Higher employment and income
A higher pressure on exchange rate
Lower debt
Possible inflation

EXCHANGE RATE

The rate of one currency expressed in terms of another currency

TYPES OF EXCHANGE RATE

CAUSES OF EXCHANGE RATE FLUCTUATIONS

TYPES OF FLUCTUATIONS

CAUSES OF EXCHANGE RATE FLUCTUATIONS

Demand for the currency
Supply of the currency
Inflation
Interest rate
Level of exports
Level of imports
State of the economy
Speculations
Business activity
Economic growth

CONSEQUENCES OF EXCHANGE RATE FLUCTUATIONS

APPRECIATION	DEPRECIATION
1us$ = 15.42mvr To 1us$ To 10mvr	1us$ = 15.42mvr To 1us$ To 19mvr
Exports expensive Exports revenue falls if demand for exports is elastic. ( may not fall if demand for exports are inelastic) Imports cheaper Imports expenditures rise When imports are greater than exports, BOP unfavorable(deficit) Lower output and employment	Exports cheaper Exports revenue rises if demand for exports is elastic. ( may not fall if demand for exports are inelastic) Imports expensive Imports expenditures fall if demand for exports is elastic. ( may not fall if demand for imports are inelastic) When exports are greater than imports, BOP favorable(surplus) Higher output and employment

TRADE

Trade between countries is known as international trade. Trade between countries without any trade restrictions are known as free trade

FREE TRADE

ARGUMENTS FOR /REASONS	ARGUMENTS AGAINST
Increased production Prestige Innovation Encourage specialization Competition Friendship Benefits to consumers Foreign exchange gains Employment Economic growth	Infant Industry Argument. Harmful goods Dumping Balance of payment deficit Culture damages

TARDE PROTECTION/ TRADE BARRIERS

Restriction placed on imports in order to encourage domestic production

TYPES OF TRADE PROTECTION

Tariffs: – Tax on imports. Tariffs make imported goods more expensive to buy, because the cost is passed on to consumers. Higher prices reduce demand for the imported goods and help a nation’s own industries compete. Tariffs also increase government revenue, which can help reduce a nation’s budget deficit.
Quota: – A physical limitation on imports.
Subsidies:- A financial help from government to domestic firms
Exchange control:- Restriction of foreign currency for the importers
Embargoes:- Complete ban on imports
Standards:- are rules about the quality of imported

ARGUMENTS FOR AND AGAINST TRADE PROTECTION

ARGUMENTS FOR	ARGUMENTS AGAINST
Revenue for the government Avoid dumping Reduce harmful goods Encourage domestic infant industries Favorable BOP	Limit choice High price of imports Retaliation