Study Notes
Economic development involves classifying economies by their income levels and evaluating various indicators of living standards. Economies are often classified using GDP per capita, GNI per capita, or NNI per capita, and the World Bank uses GNI per capita to categorize countries into low, lower middle, upper middle, and high-income groups.
- GDP (Gross Domestic Product) — Measures the total value of goods and services produced within a country's borders. Example: A country's GDP includes all products and services sold domestically.
- GNI (Gross National Income) — Measures the total income earned by a country's residents, including income from abroad. Example: GNI accounts for income from foreign investments.
- PPP (Purchasing Power Parity) — Adjusts GDP for differences in relative price levels. Example: PPP compares the cost of a basket of goods in different countries.
- Human Development Index (HDI) — A composite indicator that considers economic income, education, and health. Example: HDI includes life expectancy and years of schooling.
- Kuznets Curve — A U-shaped curve showing income distribution changes during economic development. Example: Initially, income inequality rises, then falls as economies develop.
Exam Tips
Key Definitions to Remember
- GDP (Gross Domestic Product)
- GNI (Gross National Income)
- PPP (Purchasing Power Parity)
- Human Development Index (HDI)
- Kuznets Curve
Common Confusions
- Confusing GDP with GNI, as GDP measures domestic production while GNI includes foreign income.
- Assuming higher GDP per head always means better living standards.
Typical Exam Questions
- Discuss whether GDP is a good measure of well-being? GDP measures economic output but not necessarily well-being or quality of life.
- Why might an economy experience a rise in GNI per capita but a fall in quality of life? Income distribution may become more uneven, affecting quality of life.
- Which change is most likely to increase a country’s HDI value? A decrease in the death rate.
What Examiners Usually Test
- Understanding of how economies are classified by income.
- Ability to evaluate different indicators of economic development.
- Knowledge of the limitations of GDP as a measure of living standards.