Case study practice: two countries, two kinds of progress

What this lesson teaches

• I can explain standard of living in material and non-material terms and why real income per head alone is not enough.

  Syllabus 8843, 3.2.1(a). Standard of Living and Macroeconomics Indicators: Economies are primarily concerned with improving the standard of living; Standard of living involves material and non-material aspects, as measured by real national income per capita taking into account other indicators including income distribution, leisure time, quality of environment

• I can read real GDP, GNI, per-capita figures, unemployment rate, CPI, HDI and the Gini coefficient.

  Syllabus 8843, 3.2.1(c). Standard of Living and Macroeconomics Indicators: Macroeconomic indicators; Indicators of economic performance include real Gross Domestic Product (GDP) or Gross National Income (GNI), real GDP or GNI per capita, unemployment rate and Consumer Price Index (CPI); Human Development Index (HDI) as an indicator to reflect standard of living; Gini coefficient as an indicator to reflect income distribution

• I can compare living standards over time and between countries, and say where the comparison is weak.

  Syllabus 8843, 3.2.1(d). Standard of Living and Macroeconomics Indicators: Comparison of living standards over time and over space (between economies)

Make a guess

Country P grows 6% a year from a low income; country Q grows 1% a year from a high income. Whose people have more goods and services each?

1. Country P's, because it is growing six times as fast as Q.
2. They are equal, because P is catching up.
3. Country Q's, because its level is still much higher.

The extracts

Extract 1: Country P, the factory of the region

Over the past ten years, Country P has become a major centre for manufacturing. Foreign firms have built factories near its coastal cities, and millions of workers have moved there from farming villages. Factory wages are much higher than farm incomes, and many families now own a motorcycle, a fridge and a smartphone for the first time. But growth has come at a cost. Workers often do long shifts six days a week, and smoke from factories and traffic hangs over the cities for much of the year. Incomes in the countryside have risen far more slowly, and good schools and hospitals are found mostly in the cities. Written for these notes; Country P is invented.

Extract 2: Country Q, rich but slowing

Country Q has one of the highest incomes in the world, but its economy now grows by only about 1% a year. Its people live long lives, work fewer hours than people in most countries and enjoy clean air. Its population is ageing fast, and some young people worry they will not live as well as their parents. Several governments now judge their success by more than GDP. In 2019, New Zealand presented its first 'Wellbeing Budget', which set spending priorities using measures such as mental health and child poverty. Written for these notes; Country Q is invented, the New Zealand example is real.

Extract 3: One number is not enough

The United Nations' Human Development Index (HDI) combines life expectancy, years of schooling and income per person. Countries with similar incomes can rank quite differently on it. Critics point out that the index still leaves out inequality, the environment and working hours. Many statistics offices, including Singapore's, publish median household income and measures of inequality alongside GDP, so that people can see how a typical household is doing. Written for these notes from public information.

How the 8- and 10-mark parts are marked

Data parts (1 to 3 marks)

Point-marked. A 'compare' part gives 1 mark for a similarity or difference with figures and 1 for a second point. A 'calculate' part gives marks for the working and the answer; 'explain' adds a mark for what the result shows.

8 marks: L2 (4 to 6)

Both sides are explained with clear reasoning and evidence from the figures and extracts. A top L2 answer uses several indicators, material and non-material.

8 marks: L1 (1 to 3)

One-sided, or indicators listed without saying what they show, or little use of the data.

8 marks: E (1 to 2)

E2: a reasoned judgement in the context of the case that says in what sense, and for whom, the answer holds. E1: a judgement that is stated but not explained.

10 marks: L2 (4 to 7)

Both approaches are analysed with developed reasoning, their limits and case evidence. If only one approach is developed, the answer is usually capped at about 5.

10 marks: L1 (1 to 3)

Mostly descriptive, one-sided, or not tied to the case.

10 marks: E (1 to 3)

E3: a well-reasoned judgement on which approach better raises living standards, depending on the country's stage of development and its problems, with a conclusion. E2: a reasoned judgement with less support. E1: an unsupported judgement.

Worked example: Level or growth?

Suppose Country X's real GDP per capita rose from US$5,000 to US$6,000, and Country Y's from US$50,000 to US$52,000, over the same period.

1. Growth: X grew by 20% (1,000 / 5,000), Y by 4% (2,000 / 50,000).
2. Level: Y is still far richer per person: US$52,000 against US$6,000.
3. So X is catching up in growth, but Y has the higher material living standard.
4. Always say which one, level or growth, your point is about.

Watch out for this

Country P grew faster than Country Q, so people in Country P now have a higher standard of living.

Faster growth raises Country P's living standards relative to its own past. Country Q's level of real GDP per capita is still much higher, so Q's people have more goods and services each.

Check your understanding

Country P's Gini coefficient is 0.48 and Country Q's is 0.30. What does this tell you?

1. Income is shared less equally in P, so many households gain less than the average.
2. Country P's people are richer, because a higher Gini coefficient means higher incomes.
3. Country Q has lower inflation, because its Gini coefficient is lower.