he 

Physical Quality of Life Index (PQLI) is an attempt to measure the quality of life or well-being of a

country. The value is the average of three statistics: basic literacy rate, infant mortality, and life
expectancy at age one, all equally weighted on a 0 to 100 scale.

It was developed for the Overseas Development Council in the mid-1970s by Morris David Morris, as one
of a number of measures created due to dissatisfaction with the use of GNP as an indicator of
development. PQLI might be regarded as an improvement but shares the general problems of measuring
quality of life in a quantitative way. It has also been criticized because there is considerable overlap
between infant mortality and life expectancy.

The UN Human Development Index is a more widely used means of measuring well-being.

Steps to Calculate Physical Quality of Life:

1) Find percentage of the population that is literate (literacy rate).

2) Find the infant mortality rate. (out of 1000 births) INDEXED Infant Mortality Rate = (166 - infant
mortality) × 0.625

3) Find the Life Expectancy. INDEXED Life Expectancy = (Life expectancy - 42) × 2.7

4) Physical Quality of Life =

(Literacy Rate + INDEXED Infant Mortality Rate + INDEXED Life

Expectancy)

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3

The Human Development Index (HDI) is a composite statistic used to rank countries by level of "human
development" and separate developed (high development), developing (middle development),
and underdeveloped (low development) countries. The statistic is composed from data on life
expectancy, educationand per-capita GDP (as an indicator of standard of living) collected at the national
level using the formula given in the Methodology section below. There are also HDI for states, cities,
villages, etc. by local organizations or companies.

Per capita income is the numerical quotient of national production by population, in monetary terms. It is
a measure of the monetized production per person an economic aggregate such as a country, not of the
actual distribution of income or current net wealth in that aggregate. This is what each
individual would receive if the periodic income were divided equally among everyone. Per capita income
is usually reported in units of currency per annum. When comparing nations per capita income
reflects gross national product per person, but it is also used to compare municipalities within nations.

Per capita income is measured as national income divided by total population of the country.

The concept of gross national happiness (GNH) was developed in an attempt to define an indicator that
measures quality of life or social progress in more holistic and psychological terms thangross domestic
product (GDP).

The term was coined in 1972 by Bhutan's former King Jigme Singye Wangchuck, who has
opened Bhutan to the age of modernization, soon after the demise of his father, King Jigme Dorji
Wangchuk. He used the phrase to signal his commitment to building an economy that would serve
Bhutan's unique culture based on Buddhist spiritual values. At first offered as a casual, offhand remark,
the concept was taken seriously, as the Centre for Bhutan Studies, under the leadership of Karma Uru,
developed a sophisticated survey instrument to measure the population's general level of well-being. The
Canadian health epidemiologistMichael Pennock had a major role in the design of the instrument, and
uses (what he calls) a "de-Bhutanized" version of the survey in his work in Victoria, British Columbia. Ura
and Pennock have also collaborated on the development of policy screening tools which can be used to
examine the potential impacts of projects or programs on GNH. These tools are available on the
grossnationalhappiness.com website.

Like many psychological and social indicators, GNH is somewhat easier to state than to define with
mathematical precision. Nonetheless, it serves as a unifying vision for Bhutan's five-year planning
process and all the derived planning documents that guide the economic and development plans of the
country. Proposed policies in Bhutan must pass a GNH review based on a GNH impact statement that is
similar in nature to the Environmental Impact Statement required for development in the U.S.

The Bhutanese grounding in Buddhist ideals suggests that beneficial development of human society
takes place when material and spiritualdevelopment occur side by side to complement and reinforce each
other. The four pillars of GNH are the promotion of sustainable development, preservation and promotion
of cultural values, conservation of the natural environment, and establishment of good governance. At this
level of generality, the concept of GNH is transcultural—a nation need not be Buddhist in order to value
sustainable development, cultural integrity, ecosystem conservation, and good governance. Through
collaboration with an international group of scholars and empirical researchers the Centre for Bhutan
Studies further defined these four pillars with greater specificity into eight general contributors to
happiness- physical, mental and spiritual health; time-balance; social and community vitality; cultural
vitality; education; living standards; good governance; and ecological vitality. Although the GNH
framework reflects its Buddhist origins, it is solidly based upon the empirical research literature of
happiness, positive psychology and wellbeing.

Measuring Economic Growth

     

Economists use many different methods to measure how fast the economy is growing. The most common
way to measure the economy is real gross domestic product, or real GDP. GDP is the total value of
everything—goods and services—produced in our economy. The word "real" means that the total has been
adjusted to remove the effects of inflation.
There are at least three different ways to measure growth of real GDP. It is important to know which is
being used, and to understand the differences among them. The three most common ways to measure real
GDP are:
 Quarterly growth at an annual rate
 The four-quarter or "year-over-year" growth rate
 The annual average growth rate
Quarterly growth at an annual rate shows the change in real GDP from one quarter to the next,
compounded into an annual rate. (This process is often called "annualizing.") For example, in the second
quarter of 2001, the economy grew 0.1 per cent from the first quarter. If the economy had grown at that
pace for an entire year, the annual growth would be 0.4 per cent. So the quarterly growth at an annual rate
was reported at 0.4 per cent.
This measure is often used by the media. It does a good job of showing recent economic developments. But
it also tends to be volatile (see bars in Chart). This is because the effects of any one-time-only factors
during the quarter, labour disputes for example, become compounded when the rate is annualized.
The four-quarter, or "year-over-year" growth rate, compares the level of GDP in one quarter to the
level of GDP in the same quarter of the previous year. For example, in the second quarter of 2001, GDP was
2.1 per cent above that in the second quarter of 2000. This measure is popular among businesses, who
generally present their own quarterly earnings results on that basis to avoid seasonal variations.*
The year-over-year growth rate tends to be somewhat less volatile than quarterly growth at an annual rate
(see line on Chart). That is because the effect of any special factors does not get compounded. But it is also
less timely, since it looks at what happened to the economy over the entire previous year, not just the past
three months.
Finally, the annual average growth rate is the average of year-over-year percentage changes reported
during a year. The November Monetary Policy Reportindicates that the Bank expects the annual average
growth rate for 2001 to be about 1.5 per cent. For the first half of 2001, the year-over-year growth rates as
published by Statistics Canada are 2.5 per cent in the first quarter and 2.1 per cent in the second quarter.
For the third and fourth quarters, a profile that is consistent with the expectations described in the
November Report (say -0.5 per cent and 0 per cent, respectively at annual rates) yields year-over-year
growth of 0.9 per cent in the third quarter and 0.5 per cent in the fourth quarter. Averaging the four year-
over-year growth rates in 2001 gives the annual average growth rate of 1.5 per cent (dashed bar in Chart).
  
* Projected growth rates incorporate "First Scenario" values.
Each measure has strengths and weaknesses. But mixing up the measures can lead to results that may look
confusing at first glance. The Table below provides some examples that illustrate this. In the Table, the
numbers for 2001Q1 and Q2 are as reported by Statistics Canada. For the next six quarters from 2001Q3 to
2002Q4 the numbers provide two illustrative scenarios designed to make a point. The illustrative scenario in
the top panel is broadly consistent with the economic outlook described in the November Report: zero to
slightly negative growth in 2001H2, 2 per cent growth in 2002H1, and 4 per cent growth in 2002H2.** The
annual average growth rate for 2002 is 1.5 per cent. This sounds low, but as the quarterly growth at annual
rates illustrates, to achieve this annual average requires a considerably stronger quarterly profile through
2002. The reason for this is that the annual average growth for 2002 is pulled down by the very weak
growth in the second half of 2001.
To illustrate this point, the lower panel of the Table puts the quarterly growth at annual rates in 2001Q3 and
Q4 arbitrarily at 3 per cent, while leaving the profile for quarterly growth at annual rates for 2002
unchanged. With this change to the second half of 2001, 2002 begins from a higher starting point so, while
the quarterly profile in 2002 is the same as in the upper panel, the annual average growth rate is a full
percentage point higher at 2.5 per cent.
The Table also illustrates another point. Note that in the upper panel the annual average growth rates for
2001 and 2002 are the same but the quarterly profiles in the two years are very different. Through 2001
growth decelerates, while in 2002 growth picks up through the year.
The Bank of Canada uses average annual growth as a summary measure of broad trends. Annual averages
are also useful when comparing to other forecasters. However, the Bank uses the other measures to focus
on shorter-term developments.

FIRST SCENARIO

  2001 (illustrative after Q2) 2002 (illustrative)

  Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Quarterly growth at an annual rate: 2.0 0.4 -0.5 0.0 1.0 3.0 4.0 4.0

Four-quarter or year-over-year growth: 2.5 2.1 0.9 0.5 0.2 0.9 2.0 3.0

Average annual growth rate:     1.5       1.5  

SECOND SCENARIO
   2001 (illustrative after Q2) 2002 (illustrative)

  Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Quarterly growth at annual rate: 2.0 0.4 3.0 3.0 1.0 3.0 4.0 4.0

Four-quarter or year-over-year growth: 2.5 2.1 1.8 2.1 1.9 2.5 2.7 3.0

Average annual growth rate:     2.1       2.5  

* GDP data published by Statistics Canada are already adjusted for seasonal variations.
** The Bank of Canada's practice of citing average quarterly growth in each half of the year is an attempt to
seek a balance between volatility and timeliness. The results are less volatile than quarterly growth at an
annual rate, and more timely than year-over-year growth rates.
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The economic growth rate is the percentage change in

the quantity of goods and services produced from one
year to the next. It equals the growth rate of real GDP.
Real GDP is used for economic welfare comparisons,
for making international comparisons of output, and
for business cycle forecasting.
Economic welfare is a comprehensive measure of general
economic well being. Real GDP is an imperfect
measure of economic welfare because real GDP:
♦ Over adjusts for inflation — many quality improvements
that lead to higher prices are counted as
only price hikes.
♦ Omits household production — all household production
is omitted.
♦ Omits the underground economy — the underground
economy (transactions hidden from the
government) is not included.
♦ Omits health and life expectancy — neither people’s
health nor life expectancy are indicated by real
GDP.
♦ Omits leisure time — the value of leisure time is
not included.
♦ Omits environmental quality — the consequences
of adverse and beneficial environmental changes are
omitted.
♦ Ignores political freedom and social justice — the
extent of political freedom or social justice within a
nation is not measured.
Making international comparisons of real GDP can be
tricky because the real GDP of one country must be
converted into the other nation’s currency. Using exchange
rates for such conversions might understate the
real GDP in less developed nations. However, use of
purchasing power parity prices might give a more accurate
comparison.
Though real GDP probably overstates the size of fluctuations
in total production and economic welfare, it is
a reasonably good indicator of the phase of the business
cycle, e.g., expansion, peak, and so on.
HelpfulHints
1. GDP, AGGREGATE EXPENDITURE, AND AGGREGATE
INCOME :