Notes

4 MACROECONOMIC GOALS:
- price stability
- low unemployment *
- favourable BOP: current acct & capital and financial acct
- sustained economic growth

*GDP definiton:
the total value or final output produced within the geographical boundary of the country, regardless of the ownership of FOP, over a year and before adjustment for depreciation

*Nominal vs Real Income - ❝Nominal GDP is calculated considering both the changes in quantity and price while real GDP has already been adjusted for inflation as the price is kept constant at a base year so it measures the amount of production that is not affected by price change❞

*SOL definition: the extent to which people can satisfy their needs → material & non-material aspects
Material SOL ➛ Population Size & Distribution of Real National Income
Non-Material SOL ➛ Quality & Types of Goods & Services, Leisure Hours, Negative Externalities, Others

POPULATION SIZE
it is more accurate to use real GDP per capita since population size is taken into consideration.
if population rises faster than the increase in real GDP, it will actually result in a fall in real GDP per capita.
thus, the average income of citizens will fall despite real GDP rising.
hence, material SOL may not have risen since there are now lesser goods & services available for consumption for an individual.
DISTRIBUTION OF REAL NATIONAL INCOME (GINI coefficient)
real GDP per capita does not reflect the income distribution of the population.
it is important to consider the GINI coefficient to understand the distribution of income.
increase in real GDP accompanied by a high GINI coefficient means that there is a widespread income inequality.
material living standards are unequal.
richer people will enjoy improvement in their SOL but the poorer people will experience a fall in SOL
hence, an increase in real GDP may not definitely reflect a rise in SOL of citizens


QUALITY & TYPES OF GOODS & SERVICES
real GDP does not take into account the quality and types of goods and services.
over time, the quality of goods and services may have deteriorated.
moreover, if the rise in real GDP is caused by a rise in production of capital goods, and not consumption goods, non-material aspects will not necessarily have improved.
LEISURE HOURS (Welfare; Quality of Life)
if rise in real GDP is at the expense of leisure and family welfare, non-material aspects will not have improved.
NEGATIVE EXTERNALITIES
rise in real GDP does not take into consideration the externalities generated from production such as pollution.
higher real GDP accompanied by greater negative externalities may not mean each individual is better off in the non-material aspects
OTHERS
other indicators: HDI, MEW
Human Development Index is a summary of human development.
it measures the average achievements in 3 basic dimensions of:
- life expectancy
- adult literacy rate
- real GDP/GNP per capita
Measure of Economic Welfare is to refine the use of national income statistics by making adjustments.
it is more direct and useful, but also more difficult to compute since leisure, non-marketed activities and pollution are not easy to value.

[conclusion for essay]
(whatever indicator..) can be used to indicate the SOL.
however, there are more than one aspect to the SOL and it is important to look at both these aspects in order to conclude whether SOL is improved or deteriorating.
(whatever indicator..) may not always mean that SOL improves.