S15Q3 ECON4 Tierney O’Rourke
The economies of Mexico, Indonesia, Nigeria and Turkey (MINT) have all been identified as the next main emerging economies with high rates of growth. However, there are warnings that what goes up will eventually go down.
Evaluate the view that living standards must be rising in economies which are experiencing economic growth (25 marks)
Living standards are dependent on the economic welfare which individuals receive from factors of the economy, and the utility and level of satisfaction they provide them with. Living standards are derived from three factors which provide individuals with varying degrees of economic welfare; the goods and services purchased in the market economy, public goods and merit goods collectively provided by the state, and quality of life factors including external benefits minus external costs. These three factors combine to form the standard of living. National income statistics such as Gross National Product (GNP) and Gross Domestic Product (GDP) are the main form of data used to measure economic growth, economic welfare and changing in standards of living. This specific use of national income statistics to compare economic growth and living standards implies a relationship between positive economic growth and increasing living standards.
The utility which individuals receive from goods and services purchased in the market economy is mainly effected by their ability to purchase luxury goods and satisfy their ‘wants’. If there was to be a higher level of economic growth, it would cause a higher level of national output. Since real national output is equal to real national income, there would be a higher level of GDP per capita. This increased level of GDP per capita would lead to individuals having more income, most importantly an increased level of disposable income. With a prosperous outlook of the economy in a period of short run economic growth, individuals within the economy would consume more. This increase in consumption, which is the largest component of aggregate demand, would cause a rightward shift of AD, from AD to AD1. This increased level of consumption would improve individuals living standards since they would have the ability to purchase luxury goods and satisfy their ‘wants’. This evidently reflects the idea that countries experiencing economic growth are subject to improving living standards. However, in countries such as Indonesia and Nigeria, where living standards are initially low, this increase in income may simply provide individuals with the opportunity to purchase all of their basic needs, as they may have no received enough income beforehand to do so. This means that living standards will only be marginally increasing, questioning whether the correlation between economic growth and living standards is so simple.
In an interventionist economy, like the United Kingdom, the government will provide public goods, alongside merit goods. The economic welfare which is...