(2014) A Level H2 Econs Essay Q5 Suggested Answer by Mr Eugene Toh (A Level Economics Tutor)

(2014) A Level H2 Econs Paper 2 Essay Q5

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5. In 2011 Singapore’s GDP at 2005 prices grew by 4.9%, the total population grew by 2.5%, inflation (as measured by the consumer price index) was 5.2% and overall unemployment stood at 1.9%.

Source: https://singstat.gov.sg/stats/latestdata.html , accessed 30 January 2013

Discuss the limitations of these statistics in both assessing the change in the standard of living in the Singapore economy in 2011 and comparing it with that of other economies. [25]

How can these statistics help us assess change in standard of living in the Singapore economy in 2011

GDP at 2005 prices grew by 4.9%

  • This likely indicates that material standard of living has improved since an increase in GDP would likely mean that disposable income will increase and since inflation has already been accounted for increased ability to buy goods & services improved material SOL

 

Population grew by 2.5%

  • To get a loose statistic on the average income an individual earns in the economy, we can take GDP / population.

  • Since the increase in population of 2.5% is lesser than the GDP growth rate of 4.9%, GDP per capita growth would have increased as well in spite of the population growth this could mean that the average person would have seen an increase in disposable income increased ability to buy goods & services improved material SOL

 

Overall unemployment stood at 1.9%

  • At 1.9% - the economy is considered to be at full employment level. However without knowing unemployment rates of previous years – it wouldn’t be possible to presume an improvement or worsening of standard of living compared to previous years

 

Limitations of these statistics in assessing change in standard of living in 2011

Income inequity

  • As Singapore has relatively high income inequity (raw GINI coefficient at around 0.45-0.48), the increase in GDP growth may not reflect an proportionate improvement in disposable income across different income groups

 

Lack indicators to assess non-material standard of living

  • The data given helps us with some indicative understanding of changes in material standard of living but does very little for us in terms of understanding any change in non-material standard of living.

  • Assessing changes in non-material standard of living requires examination of indicators that gives us an idea of quality of life might have changed.

 

What else would we need to assess change in standard of living

Change in median household incomes

  • Since GDP per capita may not give us an accurate reflection of how an average person in Singapore might have benefited from an increase in economic growth – we may choose to use change in median household incomes as an indicator to reflect the increase in ability of the average household to purchase goods & services

 

University cohort participation rates

  • The university cohort participation rates reflect the % of each cohort of babies born in an entire year that ends up attending a university.

  • An increase in this number would suggest a larger number of each cohort being able to pursue education at a higher level more satisfaction & fulfilment improves non-material standard of living

 

Number of working hours

  • The number of working hours is a proxy to indicate the amount of leisure time that individuals may have. An increase in working hours could suggest less leisure time available and vice versa this can impact the non-material standard of living

 

How can these statistics help us compare Singapore’s standard of living with that of other economies

GDP at 2005 prices grew by 4.9% & population grew by 2.5%

  • Real GDP per capita growth was 2.4% (4.9% - 2.5%) but this statistic is actually meaningless in helping us to compare Singapore’s standard of living with that of other economies except to tell us whether our material standard of living was improving at a faster or slower rate than other economies (which is not very useful at all!)

 

Overall unemployment rate at 1.9%

  • At 1.9% unemployment – this is considered full employment. Very few countries are actually at full employment level – comparatively, based on this statistic, Singapore would likely have higher material standard of living & non-material standard of living than other economies.

  • Higher unemployment rates would indicate that more people are without a job and therefore incomes reducing ability to purchase goods & services

  • Higher unemployment rates also has a general correlation with higher crime rates and lower social stability reducing non-material standard of living

 

Limitations of these statistics in comparing Singapore’s standard of living with that of other economies

GDP per capita growth rate doesn’t allow us to compare material standard of living

  • are unable to compare standard of living just by using GDP per capita growth. For example developing countries tend to have higher GDP per capita growth rates but have lower material standard of living compared to developed countries. This is because developed countries have a much higher GDP per capita compared to developing countries.

Cannot compare non-material SOL

  • The above statistics also give us little to compare the quality of life with other economies and the comparing non-material standard of living requires examination of indicators that gives us an idea of how quality of life might be different in different economies.

 

What else would we need to compare Singapore’s standard of living with that of other economies

GDP per capita is better

  • GDP per capita would be better for comparing standard of living as compared to GDP per capita growth. The former allows us to compare the absolute ability to purchase goods & services while the latter only allows us to compare the growth rate / speed at which the standard of living is improving / worsening.

  • In fact, GDP per capita in purchasing power parity terms would be better in terms of comparing material standard of living because it would have adjusted for the differences in cost of living between different countries

 

Life expectancy

  • A comparison of life expectancy can give us an indication of how individuals in different economies may have different access to quality healthcare, sanitation & diet. A country such as Singapore with a high life expectancy of around 84 would have a higher non-material standard of living as this is a reflection of likely better access to healthcare, available good clean drinking water and proper diet.

 

Literacy rates

  • A comparison of literacy rates gives us an indication of the differences in education standards in different economies. A higher literacy rate indicates a higher % of the population being able to read and write which provides better job opportunities & fulfilment /satisfaction with life.

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