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 |
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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 |
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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 |
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TRADE BLOCS
