ECN 102 lecture 3

Problems with using GDP

GDP only records goods and services transacted in the market
E.g doesn’t account for food you grow or secret transactions (shadow economy).
GDP may not link well to welfare
Doesn’t account for happiness

HDI however accounts for health, education and GNI so is more holistic and
includes more factors that can account for happiness

Dimension Index = actual value - minimum value/maximum value - minimum

value

HDI is the mean of 3 indices, Health education and income ⅓ each

US VS UK HDI
The US has roughly 20,000 higher gdp and gni, UK has a smaller gap between
GDP and GNI. UK has higher life expectancy and expected years of schooling

HDI and GDP are strongly, positively correlated as most people are happier and
can afford better healthcare and education the more money they have

The number of people living in poverty depends on both GDP per capita and the degree of
inequality in society
Gdp doesn’t show differences amongst the population, just shows a rough value

The Lorenz curve shows the distribution of income in a country and the closer it is to the perfect
line the more equal it is. Can calculate gini coefficient from this

Multiple factors working together typically are what impact economic growth, which
often is reflected in GDP growth and GNP growth. There are numerous strategies
governments might use to try and stimulate economic growth, such as tax breaks or tax
rebates, deregulation, and investment in infrastructure, training, education & technology.
Can also be solved in the short term with changes such as lower import costs and tariffs
to allow firms to decrease costs and increase production.
Poverty can be reduced by
increasing taxes-allows it to be redistributed and bring everyone closer to the mean
Education and training to provide more people with skills to work and earn
Do nothing, can force people to work more, poorest get less poor

THIS IS HOW DIFFERENT TYPES OF GROWTH AFFECT

INEQUALITY

Global shocks e.g. covid often harm the poor more than they do the rest, more people become
poor

In general growth benefits the poor, better infrastructure, more jobs etc.
This event, called a Malthusian catastrophe (also known as a Malthusian trap,
population trap, Malthusian check, Malthusian crisis, Malthusian spectre, or Malthusian
crunch) occurs when population growth outpaces agricultural production, causing famine war,
resulting in poverty and depopulation. Increasing technological developments mean that we
have not yet realised the limit on our population, infrastructure is developing to be able handle a
larger population.