Question

76. Economies have been generally showing strong rates of growth in recent decades, but how has inequality (both within countries and between countries) changed during the time?

77. Discuss possible factors driving changes in economic inequality within and between countries.

78. What roles do human capital, natural resources, physical capital, and technology play in influencing long-run economic growth of aggregate output per capita?

84. Why is real GDP per capita used as a measure of a country's standard of living?

85. List some limitations of using real GDP as the only measure of a country's quality of life?

Answer 1

76.

The wealth inequality within countries like US, China, India, etc have been increasingly growing along with the growth in output. While top 1% share the majority of the income, the country although developed doesn't seem to be developed holistically. And during this growth, sometimes not all the industries within the country together. This stretches the growth inequality in a country.

As far as inequality between countries is concerned, it is quite inevitable I would say. Economic growth occurs as a result of robust manufacturing, great trade policies, international relations and many more. Not every country in the world can yield to that framework, therefore despite having a similar growth rate, inequalities doesn't cease to exist between coutries, especially between advanced and developing economies.

77.

Some of the factors contributing to the inequality are:

• Globalization
• Technological changes
• Flourishing of financial industries
• Labor market disruption

78.

Role of human capital:

The increase in skill set will give rise to better productivity, thus influencing the per capita demand. A better productivity means more output.

Role of natural resources:

More we use these resources, more output we shall produce but at the same time the resources get depleted. Therefore, in the long run it has a negative effect as the depletion slowly decreases the productivity as well. That's the reason why governments resort to sustainable means.

Role of physical capital and technology:

All the equipments, machine, automation, etc come under this category. We pretty well know that increase in physical capital would definitely increase the productivity as the machines can do jobs quicker than before. Hence the aggregate demand per capita increases too in the long run.

84.

Real GDP removes the inflation effects and gives us a great idea about the purchasing power of the citizens which ultimately translates to the quality of life. More output means the wages paid are more, and this implies that the households can purchase more. Therefore, real GDP is used as a great standard to measure quality of life.

85.

Although it might sound like a very legitimate indicator for measuring quality of life, it sure does have limitations. Real GDP is only a rough indicator because it does not account for leisure, environmental quality, quality of health and education, transactions outside the market, changes in inequality of income, etc. Together combining all these factors we can comment on a country's quality of life.

Hope this helps. Cheers!