1. Measures and Indicators of living standards
1.1. The most practical measure of standards of living in a country
1.2. GDP per head (GDP per capita)
1.2.1. Problems with using GDP - size of population is ignored - inflation, value of money falls
1.2.2. Real GDP per capita is a better measure
1.3. Human Development Index (HDI)
1.3.1. An index that measures 3 key dimensions of human development
1.3.1.1. 1. Health care - Measures life expectancy at birth
1.3.1.2. 2. Education - Measures the mean and expected years of schooling
1.3.1.3. 3. Income levels - Higher the national income, the greater the HDI
1.3.2. Limitation of HDI
1.3.2.1. Qualitive factors
1.3.2.2. Humanitarian aid - Charitable financial assistance for saving lives - Used in response to major crisis, such as natural disasters e.g medical aid, food aid
2. The Business Cycle
2.1. Economic growth occurs when there is an increased level of economic activity in a country over time. Fluctuations in economic activity create a long-term tend of growth
2.2. Peak
2.2.1. - Economy activity at its highest level - Low unemployment - Consumer and business' confidence levels high
2.3. Recession
2.3.1. - When a country's GDP fall for two consecutive quarters - Decline in consumption, investment and net export
2.4. Slump
2.4.1. - The bottom of a recession in the trade cycle - High unemployment - Consumer and business' confidence levels low
2.5. Recovery
2.5.1. - Level of GDP starts to rise, recovering from slump - Gradual increase in consumption, investment and net export
2.6. Boom (economic growth)
2.6.1. - Level of economic activity rises - GDP increases for two consecutive quarters
3. Gross Domestic Product
3.1. GDP formula = C + I + G + (X-M)
3.2. Consumption Expenditure (C)
3.2.1. Total spending on goods and services e.g spending on housing, food, clothing
3.3. Investment Expenditure (I)
3.3.1. Capital expenditure on FIRMS e.g spending on new machinery, factory construction
3.4. Government Expenditure (G)
3.4.1. Total consumption and investment expenditure of government e.g spending on infrastructure, school, hospital
3.5. Export earnings (X)
3.5.1. Measures the monetary value of all exports sold to foreign buyers
3.6. Import Expenditure (M)
3.6.1. Measures the monetary value of the payments made for all imports e.g France imports a lot of cars, oil and smartphones
4. Economic Growth
4.1. Economic growth is when: - there's an increase in the level of national output - annual percentage change in GDP
4.2. Causes of Economic Growth
4.2.1. 1. Factor endowments
4.2.1.1. - Quantity and quality of a country's factor of production - Can specialize production, benefiting from economies of scale e.g Saudi Arabia is well endowed in the supply of oil
4.2.2. 2. The labour force
4.2.2.1. - The size, skill and mobility of the economy's workforce e.g India's large labour force contributed to economic growth
4.2.3. 3. Labour productivity
4.2.3.1. - Amount of goods and services the workers produce in a given period - Output per worker, in monetary value - GDP divided by the country's labour force
4.2.4. 4. Investment expenditure
4.2.4.1. - Investment in capital resources to remain competitive and help boost GDP in the long run - Improves labour productivity
4.3. Advantages
4.3.1. 1. Improved standards of living
4.3.1.1. - Higher income levels lets people meet their needs and wants - Helps eliminate absolute poverty in the country
4.3.2. 2. Employment
4.3.2.1. - Economic growth leads to higher levels of employment - Raises consumption and encourages investment in capital
4.3.3. 3. Tax revenues
4.3.3.1. - With higher levels of spending, more tax revenues are generated for the gov e.g gov collects more sales, corporation and import tax
4.4. Disadvantages
4.4.1. 1. Environmental consequences
4.4.1.1. - Negative externalities e.g pollution, congestion, land erosion - Damages the wellbeing of people
4.4.2. 2. The risk of inflation
4.4.2.1. - Excessive demand could risk a demand-pull inflation - Prices of goods and services will increase, risking a decline in international competitiveness
4.4.3. 3. Inequalities in income and wealth
4.4.3.1. - Not everyone in an economy will benefit the same from economic growth - Creates greater disparities in the distribution of income and wealth
4.4.4. 4. Resource depletion
4.4.4.1. - Economic growth leads to scarce resources being consumed faster than it is replenished e.g overfishing has led to problems in the ecosystem