What this lesson teaches
I can read real GDP, GNI, per-capita figures, unemployment rate, CPI, balance of trade, HDI and the Gini coefficient.
Syllabus 9570, 3.2.1(c). Standard of Living and Macroeconomics Indicators: Macroeconomic indicators; Indicators of economic performance include real Gross Domestic Product (GDP) or Gross National Income (GNI), real GDP or GNI per capita, unemployment rate, Consumer Price Index (CPI) and balance of trade; Human Development Index (HDI) as an indicator to reflect standard of living; Gini coefficient as an indicator to reflect income distribution
Make a guess
Two countries have the same income per head, but one has longer life expectancy and more schooling. Which has the higher HDI?
- The one with better health and schooling.
- They have the same HDI, because their incomes are equal.
- The one with lower schooling, because people work more.
Show the answer
The one with better health and schooling.
HDI combines income, health and education. With equal income, better life expectancy and schooling raise the index.
HDI combines income, education and health into one index, giving a broader view than income alone.
The Human Development Index (HDI), published by the United Nations, combines three dimensions: a long and healthy life (life expectancy), knowledge (years of schooling) and a decent standard of living (GNI per capita adjusted for price differences between countries).
It ranges from 0 to 1. A higher HDI shows higher achievement across the three dimensions.
HDI is broader than income alone, so it is better for comparing overall development between countries.
But it still leaves out inequality, the environment, leisure and political freedom, and it is an average for the whole country.
- HDI
- Health, education and income.
- Leaves out
- Inequality, environment, leisure.
Worked example: Similar income, different lives
Two countries have similar GNI per capita. One has longer life expectancy and more years of schooling, but worse air pollution.
- Income alone would rank them equally.
- HDI would rank the first country higher, because of better health and education.
- Neither measure captures its worse air pollution, which also affects living standards.
Watch out for this
HDI measures every aspect of living standards.
HDI covers income, health and education. It leaves out inequality, the environment and leisure.
Check your understanding
Which is NOT one of the three dimensions of HDI?
- Life expectancy at birth.
- Environmental quality.
- Years of schooling, expected and actual.
Show the answer
Environmental quality.
Right. HDI covers health, education and income only.