AU14 MWF Exam 1 Review
The exam will have 5, 10-point questions on it from the questions below.
1. List 2 data sources researchers use to estimate historical standards of living and explain what they can infer from these sources.
1) tax records (production information, shipping information, exports and imports, wealth)
2) church records (births, deaths, life expectancy)
List three indicators of economic development other than National Income measures (NI, GDP, or GNP, level, growth rate, or per capita) that are of interest to economists and explain what can be inferred from each of these indicators.
1) Average annual rate of inflation. Indicator of the stability of an economy. It’s a measure of the confidence in a government.
2) Life expectancy at birth. Unambiguous measure of well being. Higher life expectancy means better nutrition, better care, great quality life.
3) Adult literacy, both female and total. Measure of human capital. Literate workers are more productive. Also negatively correlated with child labor. Female literacy is a measure of how egalitarian a society is. A society that educates boys at much higher rates than girls generally means women have a low status.
(Data sources: censuses/surveys (population, demographic information, occupational distributions), tax records (production information, shipping information, imports and exports, wealth), church records (birth, death, life expectancy), heights and skeletal remains (wealthier populations typically taller)
Indicators: Average annual rate of inflation (high annual inflation is associated with government instability which cares less about the welfare of its citizens and more about own causes), life expectancy at birth (can find information about the health of citizens, developed world today anomaly as diseases of excess taking hold), adult literacy (shows human capital capacity, high literacy rate reflects a productive workforce; also indicates that children have had time to go to school and not just work, female literacy shows how egalitarian)
2. Explain in detail 3 weaknesses of per capita GNP (or GDP) as a measure of economic well-being. Although this measure has the flaws you just listed (and others) it is the most oft-referenced statistic when considering standard of living differences across countries. Why?
1. Does not capture all economically important activities
a. black market/informal market—much larger in less developed countries.
b. Agricultural production for own consumption
2. Dollar value of a good does not always equal “social” value (e.g., no accounting for pollution costs) so, while incomes rose during the IR, welfare may have declined. A war will increase GDP as government. Spending component increases rapidly, but not improve the lives of citizens. All spending is not equal. A crime wave means more prisons, and more GDP but people are less safe and crime victims more often.
3. Welfare depends not only on size of national income but on its distribution.
4. Does not account for differences in “cost of living” across time and space
Even if GDP per capita were a good measure of average income, comparisons across space and time would be hindered by the fact that the “cost of living” – that is, the cost of a certain bundle of goods or a certain lifestyle – is not the same in different societies (prices – housing prices in particular, taxes, etc.)
Despite these caveats, GDP still most oft-referenced measure of countries’ welfare for two main reasons: 1. widely available for many countries for many years. Almost every country back to 1960s. U.S back to 1840. And for UK and other euro countries even longer.
2. As it turns out highly, predictably correlate with all other measures. Wealthier countries have longer lifespans and high literacy,etc.
(GDP does not capture all economically important activities (no black market activities, bartering, agricultural consumption for personal use,