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Topic C2: Bridging the Development Gap
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- 1what you mean by the "global development gap"?The development gap is the social and economic disparity between the wealthy and the poor. It occurs globally (i.e. between countries) but also locally (within cities or local regions)
- 2How can the global development gap be measured?The development gap can be measured using various indicators such as GDP per capita (nominal and PPP), GNI per capita and Human Development Index (HDI)
- 3Name two important ways of measuring development gap-Social indicators measure the access a population has to education, nutrition, health, leisure and safety - as well as political and cultural freedom.
-Economic indicators are a measure of a country's wealth and how it is generated. They give a very accessible measure of the amount of wealth in the economy of one country compared with another. - 4Economic development is measured by ?GDP (Gross Domestic Product) per capita or GNI (Gross National Income) per capital
- 5Social development is measured by ?Both Life Expectancy and the Infant Mortality Rate /Human Development Index (HDI)
- 6The diagram Of Gross Domestic Product (GDP)?
- 7What Is Gross Domestic Product (GDP)?is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period/ over a year . It is calculated by combining the value of all goods produced with the valueof services provided, such as tourism or banking. It is usually divided by the total population to give per capital (per person) value, which is converted to US$ to enable comparisons to be between countries.
- 8GDP FormulaGDP=C+G+I+NX
where:
C=Consumption
G=Government spending
I=Investment
NX=Net exports
- 9Explain how the expenditure approach is used to measure GDP? or What are the elements that are added together to calculate GDP?"• Total domestic consumption: This is the total amount spent on domestically produced final goods and services. Final goods are items that will not be resold or used in production within the next year — milk, cars, bow ties, and so on.
•Investment/ Total domestic investment expenditures refers to private domestic investment or capital expenditures. Businesses spend money to invest in their business activities. For example, a business may buy machinery. Business investment is a critical component of GDP since it increases the productive capacity of an economy and boosts employment levels.
•Government expenditures/ spending : This includes everything from paying military salaries to building roads and maintaining monuments, but does not include welfare and social security payments.
•Net exports: Net exports is the total of goods and services produced domestically and sold to foreigners minus goods and services produced by foreigners but sold domestically (imports). OR - 10WHat is the most way to measure GDP?expenditure approach
- 11what is the The Expenditure ApproachThe Expenditure Approach is a method used to calculate Gross Domestic Product (GDP) by measuring the total spending on goods and services within an economy during a specific time period. It considers various components of expenditure, including consumer spending, government spending, business investment, and net exports.
- 12what does expenditure means?the total amount of money that an organization or person spends
- 13Definition of an Approach- a way of dealing with something:
- the fact of getting nearer in distance or time/ a route that leads to a place - 14Definition of per capitameans that the total number generated from a measure (eg. GDP or GNI) is then divided by the population of the country to give the final figure.
- 15Pros of GDP•Makes government expenditures more transparent
•Helps measure domestic investment expenditures
•Calculated from a formula which all countries use, therefore it is reliable indicator.
•Cheap and easy to collect
•Easy to measure growth in percentage
•Easy to compare to itself and other countries
•Good way for governments to know whether economic policeis have been successful, and to what extent they have or have not been. - 16Cons of GDP•Narrow indicator that fails to show quality of life, standard of living, happiness, health care, political freedom, unemployment and quality of goods and services.
•GDP doesn’t account inequality: some very wealthy businessmen may make the GDP of a country high yet the majority of the country may be backward and in poverty.
Examples of where distribution of wealth are uneven is in China and Brazil, these countries have a very high GDP but also have high inequality.
•Doesnt account for enviromental impacts of the economic polices.
•Doesn’t include the informal sector activity or the activity on the ‘black’ market.
•Overseas income not taken into account
High inflation may be behind a high GDP rate
•Country may have high productivity but not able to afford the goods, e.g. China makes a huge number of iPhones but the majority of people living their can’t afford them - 17Diagram of Purchasing power parities (PPP)
- 18Definition of Purchasing power parities (PPP)Purchasing power parity is the exchange rate at which the currency of one nation must be converted into the currency of another so that the same products and services can be purchased in each country.The basket of goods and services priced is a sample of all those that are part of final expenditures: final consumption of households and government, fixed capital formation, and net exports. This indicator is measured in terms of national currency per US dollar.
- 19formula of Purchasing power parities (PPP)
S=
P
2
S=P2/P1
where:S= Exchange rate of currency 1 to currency 2
P1= Cost of good X in currency 1
P2= Cost of good X in currency 2
or
Pd = Sd/f x Pf
Where:
Pd = domestic price
Pf = price abroad
Sd/f = PPP exchange rate, domestic currency against foreign currencies
- 20Definition of exchange ratean exchange rate is the rate at which one currency will be exchanged for another currency
- 21Who are the Users of PPPThese PPPs are used ;
by international macroeconomists, the World Bank, the International Monetary Fund (IMF), and the Organization for Economic Cooperation and Development (OECD) to estimate global productivity, growth, and make predictions and recommendations for economic policy - 22pros of Purchasing power parities-It helps to better understand the true value of goods and services in different countries by adjusting for currency exchange rates and price differences.
-It can help businesses and investors make more informed decisions about where to invest or expand their operations.
-It can provide a more accurate picture of a country's economic health and overall living standards. - 23cons of Purchasing power parities-PPP relies on the assumption that goods and services are priced equally across different countries, which may not always be the case due to factors such as government regulations, trade barriers, and cultural differences
-It can be difficult to accurately measure and compare the cost of living across different countries, as there are many variables that can affect prices.
-PPP may not account for differences in quality or availability of goods and services between countries, which can significantly impact their value.
-Market competition is not considered. - 24Diagram of Gross National Income (GNI)
- 25What Is the Gross National Income (GNI)hhh
- 26Gross National Income FormulaPDB = C + I + G+ NX
Where:
C = Consumption, which is the value of household expenditures for goods and services
I = Investment, including the gross investment by the business
G = Government spending consists of all government spending, except transfer payments because it does not involve exchanging goods and services.
NX = Net exports (X), the difference between exports and imports - 27pros of Gross National Income•GNI measures and tracks a country’s wealth from year to year, regardless of where it was obtained. You can divide it by the total population (we call it GNI per capita), which shows the country’s average pre-tax income. or It’s easy to use dollars to compare the differences in wealth between countries.
•This statistic is more accurate than GDP in describing income, mainly if a country receives a lot of income from abroad. In other words, many citizens work abroad. They send income to their families back home, supporting their well-being. So, they may still enjoy prosperity even though the economy in their home country is sluggish.
• It gives a baseline figure of the amount per head of population that each person in the country is likely to earn on average each year. - 28cons of Gross National Income• Actually working out how much money is earned within a country is very difficult. It takes a lot of effort to collect this information. In many countries there are concerns about how accurate the information is.
• In our globalised world it is increasingly difficult to work out who owns what and where the money and profit might actually belong.
• GNI can be misleading when used to compare countries because it doesn't account for differences in the size of populations.
• It accounts only for income in terms of economic development and offers no insight into quality of life.
• GNI figures for countries with different currencies must be converted to a common currency and thus may not accurately reflect a specific country's purchasing power. - 29What Is the Human Development Index (HDI)?The Human Development Index (HDI) is a statistic developed and compiled by the United Nations since 1990 to measure various countries’ levels of social and economic development.
- 30Diagram of HDI
- 31what does the Economic and Social indicators provide ?Economic indicators can provide information about the standard of living in a country, while social indicators tell us about the quality of life
- 32The HDI uses four indicators?-life expectancy (a social measure)
-education (average number of years of schooling and expected years of schooling– a social measure)
-gross national income per capita
(an economic measure) or GDP per capita (using PPP$) - 33Advantages of using the HDI• HDI uses 2 types of social data (health and education) and 1 type of economic data which means that the measure uses a broad range of information and is not tied up with only one measure. This is a much more accurate measure of both the standard of living AND quality of life in a country.
• The information is updated annually and collected by a range of people who ensure that the data is as accurate as possible. - 34Disadvantage of using the HDIIt only captures some aspects of human development. It does not reflect empowerment, people’s feelings of security, gender inequality, or racial inequality. Likewise, it does not consider technological development as a measure of development
- 35The difference between GDP and GNIGDP refers to the total value of all goods and services produced by a country in a year. GNI is similar to GDP except that as well as taking into account the total value of goods and services produced by a country, it also includes the income that the country earns as a result of investments in other countries.
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- English GEOGRAPHY Fichas sobre Topic C2: Bridging the Development Gap, creado por Leila Frojo el 18/02/2024.
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