RI H1 Economics Lecture Notes 4 Key Economic Indicators and Standard of Living

ECONOMICS RAFFLES INSTITUTION YEAR 5 H1 ECONOMICS 2018 LECTURE NOTES KEY ECONOMIC INDICATORS 1 Introduction to Macroeconomics 2 Living Standards and its Indicators 2.1 Material Standard of Living 2.1.1 Indicators of Material Standard of Living 2.1.2 Problems with Real GDP per capita as an indicator 2.2 Non-material Standard of Living 2.2.1 Indicators of Non-material Standard of Living 2.2.2 Problems with Qualitative Indicators 2.3 Composite Indicators 3 Comparisons of Economic Performance & Living Standards 3.1 Comparisons over Time 3.2 Comparisons over Space (between countries) 4 Overview of the Singapore Economy 4.1 Singapore’s Key Economic Performance 4.2 Singapore’s Standard of Living Theme 3: The National Economy @dream

Raffles Institution Economics Department 2 References Bank, W. (2006). World Development Report 2006 - Equity and Development. New York: World Bank; Oxford University Press. Caves, R. E., Frankel, J. A., & Jones, R. W. (2007). World Trade and Payments -An Introduction. Boston: Pearson. Colman, D., & Nixson, F. (1994). Economics of Change in Less Developed Countries. Coventry: Harvester Wheatsheaf. Frank, R. H., & Bernanke, B. S. (2009). Principles of Economics (4th Edition). Boston: McGraw-Hill Irwin. Mankiw, G. N., Quah, E., & Wilson, P. (2013). Principles of Economcis - An Asian Edition (2nd Edition). Singapore: Cengage Learning. Ministry of Manpower(Singapore). (n.d.). Retrieved September 2016, from Labour Market Statistical Information: http://stats.mom.gov.sg/Pages/Home.aspx Nagle, G. (2005). Development. London: Hodder Murray. Singapore Department of Statistics. (n.d.). Singapore Department of Statistics. Retrieved September 2017, from http://www.singstat.gov.sg/ Sloman, J. (2006). Economics (6th Edition). England: Pearson. Tragakes, E. (2012). Economics for the IB Diploma. Singapore: Cambridge University Press. United Nations Development Programme. (n.d.). Retrieved September 2017, from Human Development Reports: http://hdr.undp.org/en/data World Bank. (n.d.). World Bank Open Data, http://data.worldbank.org/ (References in bold are recommended resources for the A Level Economics student.) At the end of this lecture, candidates should be able to: •Understand the meaning of standard of living and explain how the quantitative and qualitative aspects may be measured •Compare economic performance and living standards over time and over space (between countries) •Understand the key economic indicators of Singapore @dream

Raffles Institution Economics Department 3 1 INTRODUCTION TO MACROECONOMICS Economics is traditionally divided into 2 parts: microeconomics and macroeconomics. Microeconomics considers individuals, households and firms' behavior in decision making and allocation of resources. It generally applies to particular markets of goods and services and deals with individual and economic issues. For instance, how taste & preferences increase demand for a good such as apples; causing price and quantity to increase. Macroeconomics is, however, on the aggregate economy as it considers the economy as a whole. For instance, how pessimism in the economy causes firms to reduce workers, leading to rise in unemployment levels. Macroeconomics also studies relationships and connections between one country and another. For example, how a slowdown in China’s economy can affect Singaporean businesses or how Brexit will affect Singapore based firms exporting to UK. Recall: In Theme 1: The Central Economic Problem, we studied how the problem of scarcity affects economies. Because of scarcity, limited resources must be efficiently allocated to different markets to maximise society’s welfare. The aim of every society is maximisation of societal welfare. From a macroeconomic perspective, this is referred to as a rise in living standards, which can result from an improvement in the economic performance of the country. In Theme 2: Markets, we dealt with the production and consumption of goods and services in isolated markets, for example, the market for oil, food, cars etc. Models of resource allocation were used to determine the equilibrium prices and output levels of specific goods/services. In macroeconomics, we are concerned with the aggregation of prices and output levels of ALL goods and services produced in all markets in an economy. For instance, instead of determining the price and quantity of cars traded in Singapore, we are concerned with the general price level (GPL) of all goods and services in an economy, as well as the total production of all goods and services in an economy. Quantity of Cars 0 0 D1 S1 Pe Q1 Real Gross Domestic Product 0 AD AS Pe Ye Market for cars in Singapore Singapore’s economy Price of cars General Price Level @dream

Raffles Institution Economics Department 4 Also, in Theme 2: Markets, resource allocation in the free market is the result of consumers and producers acting as individual self-interested economic agents, whose demand and supply give rise to market outcomes. Governments intervene to influence market outcomes only when specific markets fail. However, in macroeconomics, governments are the key economic agents that intervene with macroeconomic policies in order to achieve macroeconomic aims such as economic growth, price stability and low rate of unemployment. In Theme 3: The National Economy, we will study the macroeconomic aims, issues and policies relating to growth, income distribution, inflation and unemployment, with particular reference to the Singapore context. We will also study the impact of global (external) trends and developments on the national, regional and international economies, and their implications for policy choices and governmental decisions. Figure 2: Overview of Theme 3: The National Economy Improve Living standards Material aspects Non-material aspects Objective / Target Key Economic Indicators Assessed By: Economic growth rate Inflation rate Unemployment rate Issues faced by governments: Slow growth/Recession Unsustainable/Inequitabl e growth Price instability (excessive inflation/deflation) High unemployment Unfavourable external factors & issues Domestic & Global (external) changes cause: To combat that, govt implements: Exchange rate policy 1. Demand management policies Fiscal policy Monetary policy 2. Supply side policies Interest rate policy Macroeconomic Policies @dream

Raffles Institution Economics Department 5 2 The ultimate goal of all economies is to raise living standards of its people to let them enjoy a higher level of welfare or well-being. Standard of living involves quantitative and qualitative aspects: material and non-material standard of living. 2.1 MATERIAL STANDARD OF LIVING Material standard of living refers to the quantity of goods and services available for consumption by the average person in the economy in a given time period. It generally refers to the level of wealth, comfort, material goods and necessities available to the average person to satisfy as much of his material wants as possible. 2.1.1 Indicators of Material Standard of Living Definition: Gross Domestic Product is the money value of all the final goods and services produced within the geographical boundary of a country during a given time period. Why GDP is a measurement of the national income of a country? The total value of all final goods and services produced should be equal to both the total income earned by workers in an economy as well as the total expenditure spent by consumers in an economy. Thus, GDP reflects the national income of the people in residing in the country. Real GDP is a measurement of GDP (the total economic output of a country) adjusted for price changes (in