Macroeconomics

1
Macroeconomics

• Measuring economic Development
• IB Econ Course Companion
• Ch 15

2
Key Terms from Ch 15

• Economic Development
• Human Development Index (HDI)
• Purchasing Power Parity Exchange Rates (PPP)
• GDP per capita
• Gender related Development Index (GDI)
• Gender Empowerment Measure (GEM)
• Human Poverty Index (HPI)
• Lorenz Curve Gini index

3
Economic Development 1

• Complex multidimensional
• Bigger than simply GDP or GDP per capita
• Amartya Sens definition Development is about
  increasing peoples freedoms.
• Reducing poverty
• Public provision of healthcare education
• Maintenance of law and order
• Guarantee of civil liberties

4
Economic Development 2

• Michael Todaros definition
• The sustained elevation of an entire social
  system toward a better or more humane life.
• Clearly there are subjective elements here.
• Three core values
• Sustenance
• Self-esteem
• Freedom from servitude and the ability to choose.

5
Human Development Index

• Based on three different measurements
• Long and healthy life (life expectancy)
• Improved education (adult literacy rate combined
  with school enrollment)
• Standard of Living (GDP per capita measured at a
  purchasing power parity exchange rate to US )
• Indicators are combined to create a value between
  0 and 1, with higher levels of development
  corresponding to higher values.

6
Purchasing Power Parity

• PPP exchange rates attempt to equate the
  purchasing power of different currencies in
  different countries.
• Calculated by comparing the prices of identical
  goods and servics in different countries.
• The most widely used is published by the World
  Bank.
• One of the best known is the Big Mac Index from
  the Economist.

7
GDP per capita

• GDP per capita is the traditional measure of
  development.
• Problem some countries have very high GDP per
  capita, but low HDI numbers.
• The US ranks 4th in per capita GDP, but 10th in
  HDI.
• Norway ranks first in HDI, but 3rd in GDP per
  capita.

8
Gender-Related Development Index (GDI)

• Looks at the same measures as HDI but adjusts for
  gender inequality.
• Inequality between men and women will result in a
  GDI figure that is lower than a countrys HDI
  figure.
• Brazil has a HDI figure of .792, but a GDI figure
  of .786

9
Gender Empowerment Measure (GEM)

• This measures the extent to which women are able
  to actively participate in economic and political
  life.
• Based on percentages of women in leadership,
  managerial and parliamentary positions, as well
  as technical and professional jobs.

10
Human Poverty Index (HPI)

• While the HDI looks at the achievements a country
  has made in three variables, the HPI looks at the
  proportion of people who are deprived of the
  opportunity to reach a basic level in each area.
• Longevity - of people who dont reach age 40.
• Education - of people who are illiterate.
• Basic needs - of people without access to safe
  water, of children who are underweight for age.

11
Lorenz Curve Gini Coefficient

• Income inequality is measured through the Lorenz
  curve. This curve compares households based on
  income and looks at the total share of GDP
  controlled by those households.
• The GINI index is derived from the Lorenz curve
  and is a ratio of the area between the line of
  equality and the line of the Lorenz curve. The
  higher the GINI index, the more unequal the
  society is.