SRJC H2 ECONS 9757 Q5 MS

In 2015, Singapore’s GDP at 2010 Market Prices grew by 2%, the total population grew by 0.8%, inflation was -0.5% and overall unemployment stood at 2%. Discuss the limitations of these statistics in both assessing the changes in the standard of living in the Singapore economy in 2015 and comparing it with that of other economies. [25] Introduction: Definition: Standard of living includes both material and non-material well-being of an individual or household. The material well-being consists of quantity and quality of the goods and services available for consumption while the non-material well-being include quality of life such as the quality of the environment, leisure hours. Direction: As standard of living embraces both material and non-material well-being of the population, we need to consider statistics such as GDP growth, inflation and unemployment rate to assess the change in standard of living of a country as well as a basis of comparison with that of other economies. Thesis: P1: GDP data can be used to assess the material SOL of Singapore. From the data given, Singapore’s GDP at 2010 Market Prices grew by 2%. It means that there is an increase in the value of real output (qty or volume of goods) by the country after taking inflation into consideration. With the rise in real incomes, people are better off because more goods and services have been produced and made available for consumption. More wants are satisfied, thus increasing the material standard of living of its people. However, an increase in real GDP may not reflect an improvement in the standard of living of an average Singaporean. It does not necessarily mean that the average citizen is able to enjoy 3% more goods and services. This depends on the rate of population increase. If the population grows faster than national income, the individual’s share of real national income will be falling. Hence, standard of living might be under or overstated if population growth is not taken into consideration. Hence, a more accurate indicator of changes in standard of living over time is real GDP per capita. Since population growth is 0.8% which is lower than the growth of real GDP of 2%, this means that real GDP per capita is 1.2%. Thus, a real GDP per capita growth of 1.2% could mean that on average, each person has 1.2% more goods to consume now. Overall, there is an improvement in material SOL in Singapore. Essay outline:  Explain the uses of Singapore’s GDP at 2010 Market Prices to measure material SOL. Explain the relationship why there is a need to use real GDP per capita to measure material SOL.  Discuss the uses of inflation and unemployment data to measure SOL.  Discuss the limitations of using real GDP per capita to measure SOL over time.  Discuss the limitations of using inflat ion and unemployment data to measure SOL over time.  Explain why and how real GDP per capita is used to measure SOL over space.  Explain PPP with reference to measuring SOL over space  Conclude with some discussion about the relevance/importance of statistics in assessing changes in the SOL.

P2: Inflation data can be used to assess the material SOL of Singapore. Inflation rate is the percentage change in price level from year to year. Price changes are measured by CPI, which gives the change in the price of fixed basket of goods and services commonly purchased by households in specific period of time. Any changes in the index reflect solely price changes. An inflation rate of -0.5% mean that prices on average decreased by 0.5%. This means that there is a decrease in the cost of living (how much it cost to buy a common basket of goods – basket of goods refer to goods consumed by the average household) in the country. This could translate to a higher material SOL in Singapore as with the same money income, purchasing power increase. P3: Unemployment data can be used to assess non- material SOL of Singapore. Unemployment rate is a key indicator of the state of the labour market. The statistics given is 2% which is considered low in the international standard. The low unemployment rate indicates that Singapore is experiencing high employment continuously. This means that majority workers who are looking for work are able to find work. The stress of getting employed in Singapore is lesser compared to another country with high unemployment rate. Low unemployment could also be linked to having lo wer crime rates and social issue given that majority of people are employed and have less tendency to commit crimes. Overall, there should be a rise in non-material well-being of an average person in Singapore \. [Transition statement] Limitations of the indicators: Real GDP, inflation and unemployment rate appear to be useful in assessing the level of standard of living across time. However, there are some limitations in using the statistics especially when it is used to measure SOL over time. P4: GDP data might not be a good measure of material SOL in Singapore over time. Real GDP per capita is a statistical mean (average) and it does not reflect the income distribution among the people in the country. An increase in real GNP per capita does not mean that all individuals benefit equally from economic growth since there is bound to be inequalities in the distribution of income. In fact, the distribution of income may become more unequal when the country enjoys economic growth. The rich experience a faster rise in income as they usually have the skills that employers are looking for. For the poor, they experienced difficulty in getting employed as they often lack the skills required. Thus, they will have to settle for low-paying job, worsening income inequality. To make meaningful comparisons of standards of living over a period of time, we have to make use of supplementary indicators such as the Gini coefficient when assessing the change in material SOL in Singapore. Gini coefficient helps to assess if there is equity in the distribution of the increased output. This will give us a better overview how equitable the income distribution. A fall in the Gini coefficient value reflects an improvement in the income distribution in Singapore and hence higher SOL for the average person. [Optional point] Real GDP per capita does not take into account the type of output produced. A country’s output includes both consumptio n and investment good. If the increase in Singapore’s real GDP per capita is due to an increase in investment in capital goods, consumers are no way better off in their current standard of living given that current living standard depends on the level of consumption goods. Moreover, if the production of capital good is at the expense of consumers’ goods, it will worsen the current level of standard of living but improve future standard of livi ng. Thus, additional information on the real consumption per capita would be more useful.

P5: Inflation data might not be a good measure of material SOL in Singapore over time. In the earlier paragraph, it is the changes in the price of the fixed basket goods and services commonly purchased by households in specific period of time will reflect the changes in price as measure by CPI. The statistics gave inflation rate as -0.5%. However, it does not necessary means that the fall in price has been broad-based, resulting in an increase in material standard of living. The complication lies with how the CPI basket is constructed. CPI is computed by combing the prices for different items and groups according to their weight in their basket. Thus, price changes in items with larger weights will have a greater impact on the CPI than those with smaller weights. Accommodation and private road transport together account for more than a third of the CPI index in Singapore. Given the implementation of macro-prudential measures on h