Question

Because HIV affects many people in sub-Saharan countries, fertility in these countries has decreased tremendously, meaning that households in these countries have much fewer children. As a result, population growth is now much lower. Explain the long-run effects on income per capita (or per worker)

Answer 1

Declines in fertility automatically raise income per capita in the short run .In long run growth in income per capita will fall down due to following reasons

(i) First, the AIDS epidemic may reduce the labour supply, leading to reduced output. This may be particularly true in the labour-intensive sectors where replacement of workers is not easy to achieve.

(ii) Savings of families will be reduced due to the increase of HIV/AIDS-related health expenditures (drugs and hospitalisation), leaving less income to invest in the economy, and the children’s education.

(iii) The AIDS epidemic may divert business and governmental investment funds from other vital sectors to health expenditures, leading to a slower growth of the gross domestic product (GDP).

(iv) The HIV/AIDS epidemic may deepen the poverty of the most affected countries by decreasing the growth rate of per capita income and by selectively impoverishing the individuals and families that are affected.