ACJC H2 Domestic Macro Issues Part 1 - Standard of Living

1 ©ACJC Econs Dept/2024/H2 Domestic Macroeconomic Problems ANGLO-CHINESE JUNIOR COLLEGE JC2 Economics H2 DOMESTIC MACROECONOMIC ISSUES (1) STANDARD OF LIVING Section Content Page Overview 1: Macroeconomic Aims in Relation to Standard of Living 4 1 STANDARD OF LIVING 5 1.1 Material SOL Indicator: Gross Domestic Product (GDP) 5 1.2 Material SOL Indicator: Gross National Product (GNP) 6 1.3 Differences between GDP and GNP 6 1.4 Measuring and Comparing Material SOL 7 1.5 Limitations of Measuring and Comparing Material SOL using National Income Statistics 11 1.6 Sufficiency of National Income Statistics as a measurement of SOL 14 1.7 Use of composite indicator like Human Development Index (HDI) in measuring and comparing standard of living 14 1.8 A non-material SOL Indicator: Gini Coefficient 16 Learning Reflection 19

2 ©ACJC Econs Dept/2024/H2 Domestic Macroeconomic Problems WHAT IS THIS TOPIC ABOUT? The overall aim of governments is to attain the highest possible standard of living for all residents in their countries with the available resources and technology. The key to achieving high and rising standard of living is a strong and stable macroeconomic performance. It is through sustainable economic growth, rising income and high employment level in the labour market that a population can enjoy high material standard of living. In the earlier set of notes on Introduction to Macroeconomics, you have le arnt that standard of living has both the material and non-material aspects, as such we should be aware that by improving on the material aspect of standard of living is insufficient on its own because the non-material aspect is just as important. This new topic of Domestic Macroeconomic Aims & Problems will take you to understand these two big areas of focus: 1. How standard of living is measured and the limitations in using national income figures to measure living standards. 2. The causes of domestic macroeconomic problems, and the consequences of these problems on current and future standard of living. Keep connected to the key ideas you have learnt in the previous topic of Introduction to Macroeconomics because these are needed for you to understand the causes of macroeconomic problems. Macroeconomic problems come about from the imbalances between AD an d AS and these imbalances will pose challenges to the government in achieving its aim of raising standard of living. LEARNING OUTCOMES Enduring Understanding: • A comprehensive measure of standard of living should take into consideration both material and non-material conditions affecting individuals in a country. • Macroeconomic problems are caused by a confluence of internal and external conditions, often interrelated in nature, affecting a country’s aggregate demand and aggregate supply, hence national income and general price level. • Both the country’s national income and general price level will thus affect the