Analyze GDP every capita as a measure of the diversity of global standards that livingIdentify what classifies a nation as low-income, middle-income, or high-incomeExplain how standards of living are influenced by geography, demographics, sector structure, and also economic institutions

The national economic climates that consist of the an international economy are remarkably diverse. Let united state use one an essential indicator that the standard of living, GDP every capita, come quantify this diversity. Friend will easily see that quantifying this diversity is fraught with challenges and also limitations. As described in The Macroeconomic Perspective, us must take into consideration using purchasing power parity or “international dollars” to transform average income into similar units. Purchasing power parity, together formally defined in Exchange Rates and also International funding Flows, takes into account the fact that prices of the same great are different across countries.

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The Macroeconomic Perspective defined how to measure GDP, the obstacles of making use of GDP to compare standards of living, and the an obstacle of confusing economic size through distribution. In China’s case, for example, China ranks together the second largest global economy, 2nd to only the joined States, v Japan gift third. But, as soon as we take China’s GDP of $9.2 trillion and also divide that by its population of 1.4 billion, then the every capita GDP is just $6,900, which is significantly lower 보다 that the Japan, in ~ $38,500, and also that the the united States, at $52,800. Measurement problems aside, it’s precious repeating that the goal, then, is to no only boost GDP, but to effort toward enhanced GDP every capita come increase in its entirety standards that living for individuals. Together we have actually learned from financial Growth, this deserve to be completed at the national level by making policies that rise worker productivity, deepen capital, and breakthrough technology.

GDP per capita also allows us to rank nations into high-, middle-, or low-income groups. Low-income nations are those v $1,025 per capita GDP per year; middle-income countries have a per capita GDP in between $1,025 and also $12,475; while high-income countries have end $12,475 per year per capita income. As watched in Table 1 and Figure 1, high-income nations earn 68% of civilization income, but represent just 12% of the global population. Low-income countries earn 1% that total people income, yet represent 18.5% of worldwide population.

Ranking based on GDP/capitaGDP (in billions)% of global GDPPopulation% of global Population
Low earnings ($1,025 or less)$612.70.8%848,700,00011.8%
Middle earnings ($1,025 – $12,475)$23,93031.7%4,970,000,00069.4%
High earnings (more than $12,475)$51,090,000,00067.5%1,306,000,00018.8%
World total income$75,592,9417,162,119,434
Table 1. world Income versus worldwide Population (Source:http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true&ispopular=series&pid=20)

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Figure 1. Percent of global GDP and also Percent of Population. The pie charts present the GDP (from 2011) for countries categorized right into low, middle, or high income. Low-income room those earning less than $1,025 (less 보다 1% of an international income). They represent 18.5% of the human being population. Middle-income nations are those v per capita earnings of $1,025–$12,475 (31.1% of worldwide income). They represent 69.5% of human being population. High-income nations have 68.3% of worldwide income and also 12% that the world population. (Source: http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true&ispopular=series&pid=20)

An summary of the regional averages that GDP per person for occurring countries, measure in comparable international dollars as well as populace in 2008 (Figure 2), shows that the differences across these regions are stark. Together Table 2 shows, nominal GDP every capita in 2012 because that the 581.4 million people living in Latin America and also the Caribbean region was $9,190, which far exceeds the of south Asia and also sub-Saharan Africa. In turn, civilization in the high-income countries of the world, such together those that live in the europe Union countries or phibìc America, have actually a every capita GDP 3 to four times the of the civilization of Latin America. To put things in perspective, phibìc America and the europe Union have actually slightly much more than 9% of the world’s population, yet they produce and consume close to 70% the the world’s GDP.


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Figure 2. GDP every Capita in U.S. Dollars (2008). Over there is a clean imbalance in the GDP throughout the world. North America, Australia, and Western Europe have the highest possible GDPs while big areas that the world have significantly lower GDPs. (Credit: alteration of occupational by Bsrboy/Wikimedia Commons)Population (in millions)GDP every Capita
East Asia and Pacific2,006$5,536
South Asia1,671$1,482
Sub-Saharan Africa936.1$1,657
Latin America and also Caribbean588$9,536
Middle East and also North Africa345.4$3,456
Europe and main Asia272.2$7,118
Table 2. local Comparisons of nominal GDP every Capita and populace in 2013 (Source: http://databank.worldbank.org/data/home.aspx)

Such comparisons between regions are admittedly rough. After ~ all, every capita GDP cannot completely capture the high quality of life. Countless other factors have a huge impact on the typical of living, favor health, education, person rights, crime and personal safety, and also environmental quality. These measures also reveal an extremely wide differences in the conventional of living across the regions of the world. Much of this is associated with every capita income, yet there space exceptions. Because that example, life expectations at birth in numerous low-income regions approximates those who are more affluent. The data also illustrate that nobody can case to have actually perfect standards that living. Because that instance, despite very high earnings levels, there is tho undernourishment in Europe and North America.


Economists recognize that over there are countless factors that contribute to your conventional of living. Civilization in high-income nations may have actually very tiny time due to heavy workloads and may feel disconnected from their community. Lower-income countries may be much more community centered, however have little in the method of material wealth. That is tough to measure up these features of typical of living. The organization for financial Co-Operation and development has occurred the “OECD much better Life Index.” Visit this website to watch how countries measure approximately your intended standard that living.

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The differences in financial statistics and also other steps of well-being, comprehensive though they are, perform not fully capture the factors for the huge differences in between countries. As well as the neoclassical determinants of growth, four extr determinants are far-ranging in a wide selection of statistics studies and are worth mentioning: geography, demography, industrial structure, and institutions.

Geographic and Demographic Differences

Countries have geographical differences: part have substantial coastlines, some are landlocked. Some have large rivers that have been a route of business for centuries, or hills that have actually been a obstacle to trade. Some have actually deserts, some have rain forests. These differences create different positive and negative opportunities because that commerce, health, and the environment.

Countries likewise have significant differences in the age distribution of the population. Many high-income nations are draw close a situation by 2020 or therefore in i m sorry the elderly will kind a much larger share that the population. Most low-income nations still have a greater proportion of youth and also young adults, yet by about 2050, the elderly populaces in this low-income countries are expected to eight as well. These demographic alters will have actually considerable affect on the traditional of living of the young and also the old.

Differences in sector Structure and Economic Institutions

Countries have differences in market structure. In the high-income economies of the world, only about 2% that GDP comes from agriculture; the mean for the rest of the world is 12%. Nations have strong differences in level of urbanization.

Countries likewise have solid differences in financial institutions: some countries have economies that are extremely market-oriented, while other nations have command economies. Some nations are open to global trade, while others usage tariffs and also import share to limit the influence of trade. Some nations are torn by long-standing equipped conflicts; other countries are mainly at peace. There are differences in political, religious, and also social establishments as well.

No country intentionally intends for a low typical of living, high rates of unemployment and inflation, or one unsustainable profession imbalance. However, nations will different in their priorities and in the instances in i m sorry they find themselves, and also so their policy choices can sensibly vary, too. The next modules will talk about how nations roughly the world, native high earnings to short income, approach the 4 macroeconomic purposes of financial growth, low unemployment, low inflation, and also a sustainable balance that trade.

Key Concepts and Summary

Macroeconomic policy goals for most nations strive toward low level of unemployment and also inflation, as well as stable trade balances. Nations are analyzed based on their GDP every person and also ranked as low-, middle-, and high-income countries. Low-income are those earning less than $1,025 (less 보다 1%) of an international income. They right now have 18.5% the the civilization population. Middle-income nations are those v per capital income the $1,025–$12,475 (31.1% of an international income). They have 69.5% of world population. High-income countries are those v per capita income greater than $12,475 (68.3% of an international income). They have 12% the the world’s population. Regional comparisons often tend to be inaccurate due to the fact that even nations within those areas tend to different from every other.


Review Questions

What is the primary way in which economic experts measure standards of living?What are few of the other methods of comparing the traditional of living in countries about the world?What space the 4 other components that identify the economic standard the living roughly the world?

Critical thinking Questions

Demography have the right to have important economic effects. The united States has actually an aging population. Define one financial benefit and one economic price of one aging populace as well as of a populace that is very young.


Problems

Prepare a chart that compares India, Spain, and South Africa based on the data friend find. Describe the crucial differences between the countries. Location these together high-, medium-, and low-income countries, describe what is how amazing or expected around this data.


References

International work Organization. “Global Employment trends for Youth 2013.” http://www.ilo.org/global/research/global-reports/global-employment-trends/youth/2013/lang–en/index.htm

International monetary Fund. “World Economic and also Financial Surveys: people Economic Outlook—Transitions and Tensions.” critical modified October 2013. Http://www.imf.org/external/pubs/ft/weo/2013/02/pdf/text.pdf.

Nobelprize.org. “The compensation in economics 1987 – push Release.” Nobel Media ab 2013. Critical modified October 21, 1987. Http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1987/press.html.

Redvers, Louise. BBC News Business. “Youth unemployment: The big question and South Africa.” last modified October 31, 2012. Http://www.bbc.co.uk/news/business-20125053.

The civilization Bank. “The finish World development Report Online.” http://www.wdronline.worldbank.org/.

The people Bank. “World DataBank.” http://databank.worldbank.org/data/home.aspx.

Todaro, Michael P., and also Stephen C Smith. Economic breakthrough (11thEdition). Boston, MA: Addison-Wesley: Pearson, 2011, chap. 1–2.


Solutions

Answers to Self-Check Questions

The answer are shown in the following two tables.RegionGDP (in millions)
East Asia$10,450,032
Latin America$5,339,390
South Asia$2,288,812
Europe and central Asia$1,862,384
Middle East and North Africa$1,541,900
Sub-Saharan Africa$1,287,650
Table 4.
RegionGDP every Capita (in millions)
East Asia$5,246
Latin America$1,388
South Asia$1,415
Europe and central Asia$9,190
Middle East and also North Africa$4,535
Sub-Saharan Africa$6,847
Table 5.

East Asia shows up to be the largest economic climate on GDP basis, yet on a per capita communication it drops come third, after Europe and main Asia and Sub-Saharan Africa.

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A region can have some that high-income countries and some of the low-income countries. Aggregating every capita genuine GDP will vary widely across countries within a region, so aggregating data because that a region has small meaning. Because that example, if you were to compare per resources real GDP for the joined States, Canada, Haiti, and also Honduras, the looks much various than if friend looked in ~ the exact same data for North America as a whole. Thus, local comparisons space broad-based and also may not adequately record an individual country’s financial attributes.