Chapter 32 Answers y

Cambridge IGCSE and O Level Economics
Chapter 32: Living standards

Suggested answers to individual and group activities
Group activities
1 a For example, real GDP per head and the number of televisions per household.
b No. Some would have enjoyed a higher rise, including those who bought Porsches, while the
poor are likely to have experienced a lower rise.
c The expenditure on education is likely to have raised living standards but the effect of a rise in
expenditure on military defence is more debatable.
Individual activities
1 a
PPP stands for purchasing power parity. It means that the income figures have been adjusted
to take into account the buying power of currencies in their own countries.
b On average, Chinese people are poorer but certain individuals, such as Cheung Yan, are much
richer than most people in the UK.
c No. The information mentions that the richest group in China have an income nine times
more than the poorest.
2 a 9 9% since least wealthy 50% own 1% of the world’s wealth, the most wealthy 50% must own
99% of the world’s wealth.
b Japan having one of the ‘lowest levels of wealth inequality’ means that wealth is more evenly
1
distributed in Japan than in most of the other countries. In Japan, the gap between those
with the maximum wealth and those with the minimal wealth is smaller than that in most
countries.
Suggested answers to multiple choice questions and

four-part question
Multiple choice questions
1 B
Real gross domestic product per head gives an indication of the goods and services, on average,
people in the country can consume. It has the advantage that it is adjusted for inflation and takes
into account the country’s population size.
2 D
A, B and C are likely to reduce living standards. B may also reduce living standards if it results in a
rise in the dependency ratio.
3 D
This would mean that GDP per head would fall. A, B and C would all result in a rise in real GDP per
head.
4 B
In this case, people would be able to enjoy more leisure time and the same amount of income,
since total output has remained the same.
© Cambridge University Press 2018

Cambridge IGCSE and O Level Economics
Four-part question
a For instance, income and leisure time.
b Real GDP per head is a better measure of the standard of living in a country than nominal GDP for
two key reasons. One is that it takes into account the population size. Two countries may have a
GDP of $50 bn but if one has a population of 20 m and the other a population of 5 m, the standard
of living in the second country is likely to be higher. This is because the average income in the
second country would be $10 000 but only $2 500 in the first country. The second reason is that
real GDP has been adjusted for inflation. This eliminates the distorting effect a rise in the price
level would cause. If real GDP per head has increased, there are more goods and services per
head of the population.
c A rise in labour productivity can increase living standards as it means that a higher output can
be produced with the same number of workers. This means that people can enjoy more goods
and services. Having more goods and services raises people’s material living standards. They can
consume more necessities and possibly some luxuries. Through the taxation and benefit system,
the poor could be provided with more goods and services without reducing the goods and the
services that others can enjoy. Alternatively, an increase in productivity could enable the same
quantity of goods and services to be produced while workers have more leisure time. Having
more spare time can increase the quality of people’s lives.
d The HDI is a better measure of living standards than real GDP per head but it is not a perfect
measure. It is a wider measure than real GDP per head, as it takes into account not only real GDP
per head but also health, in the form of life expectancy at birth, and education in the form of
mean years of schooling and expected years of schooling. All the three components of HDI have
a significant impact on people’s living standards. Income affects the goods and services they
can buy, including the housing they can live in. Access to secondary and tertiary education can
increase people’s employment opportunities and earning potential in the future. People want to 2
live long lives and long lives reflect, for example, good nutrition and good housing.
The HDI, however, does not take into account the quality of education or the quality of the years
lived. It is no good receiving a high number of years of education, if the quality of education is
poor. Some people may live a long time but if they are in poor health, they will not enjoy a good
standard of living. Some countries measure quality-adjusted life years. Such a measurement
takes into account people’s ability to carry out everyday activities and freedom from pain and
mental disturbances.
The HDI is also based on averages. It does not consider the distribution of income or whether
there are differences in the education received and life expectancy enjoyed by different groups in
the country.
There are a number of other factors that influence living standards that are not included in the
HDI. For example, it does not take into account working hours and levels of pollution. Since 2010,
the UN has also published an inequality-adjusted HDI and a gender-inequality-adjusted HDI.
Of course, the more factors that are taken into account, the more risks there are of errors and
some of the information on, for instance, freedom from pain is relatively difficult to obtain and
interpret.
© Cambridge University Press 2018

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Cambridge IGCSE and O Level Economics

Chapter 32: Living standards

Suggested answers to multiple choice questions and

© Cambridge University Press 2018

© Cambridge University Press 2018

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