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Standard of living refers to the level of living which a person, family or whole nation
maintains, in terms of the various amounts of and kinds of goods and services consumed.
Standard of living varies from person to person, family to family and nation to nation. It
also varies over time. The national standard of living means the average standard of living
of all the persons living in that country.

Quality of life looks at the extent to which a person, family or nation enjoys the benefits of
its wealth. A country may have a high standard of living in terms of being able to provide
many goods and services for its people, but the quality of life may be low if the people are
not able to access the wealth provided.

Factors indicating standard of living of a country

(wealth of a country)

a‘ The level of consumption of goods and services. Generally speaking, the greater the
amount of goods and services consumed, the higher will be the standard of living.
The counter argument to this is that the quality of the goods and services may have
deteriorated while the level of consumption increased. The question, therefore, would
be, did the standard of living really increase?
a‘ 
a‘ Average disposable income of the population. Disposable income refers to net
income, the amount of money that is available to be used as one would like to. In
economics, disposable income is either spent on consumption goods and services or
saved. As far as standard of living is concerned, the higher the average disposable
income of the population, the higher will be the standard of living. The counter
argument here is that the disposable income may be high, but if it is unequally
distributed, many people may have a low standard of living.
a‘ 
a‘ The level of national ownership of capital equipment. As a country increases its
ownership of capital equipment, it is able to produce more goods and services and,
thereby, increase its standard of living. However, this means that they will first have
to save or reduce consumption in order to accumulate this capital. During this time,
the standard of living may actually fall.
a‘ 
a‘ Access to modern technology. Modern technology enables a country to produce more
and to produce more efficiently, thereby, increasing standard of living. However, for
developing countries like Jamaica, the cost and maintenance of modern technology is
high which often results in loss of jobs. This, in turn, means a lower standard of
living.
a‘ 

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 a‘ The level of investment in research and technology. The more a country spends
money in research and technology, the greater will be its improvements in the level
and quality of goods and services and then the greater will be the standard of living.
Again however, cost becomes a dominant factor as research and technology can be
very costly.

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Quality of life refers to the extent to which the country enjoys the benefits of its wealth. The
factors that affect this include:

a‘ The extent of security enjoyed. The greater the level of security enjoyed by the
citizens, the greater will be the quality of life. High levels of crime can prevent
citizens from accessing the wealth that will increase their quality of life.
a‘ 
a‘ The availability of health, educational and recreational facilities. Greater access to
these will surely increase the quality of life. Access, however, may be dependent on
ability to pay. Governments can increase a nation¶s access to these areas by
subsidising the cost, or by providing them free of cost.
a‘ 
a‘ Diet and nutrition. The amount of food and drink is not the important thing as far as
quality of life is concerned. If people are not having balanced meals, then their diet
and nutrition will be poor and the quality of life will fall even if they are consuming
more.
a‘ 
a‘ rife expectancy. This refers to the average number of years a person is expected to
live. If people are expected to live longer than before, it will mean that the quality of
life has, in fact, increased.
a‘ 
a‘ The rate of infant mortality. Infant mortality refers to death among infants. If a
country is experiencing reduced death rates among infants, then their quality of life
would be said to have increased. This could be because of improved research in
health and improved health or greater access to health care.
a‘ 
a‘ Access to public utilities. The greater the access to public utilities such as electricity
and portable water, the greater will be the quality of life. If only a few persons in a
country have access to these utilities then, generally speaking, the quality of life will
be very low.

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Vconomic growth is a quantitative concept; that is, it deals with numbers or figures or
amounts. It refers to the real growth in or expansion in national output, and is most often
measured in terms of real Gross Domestic Product (GDP).

The concept of economic growth is positive. This means it always refers to an increase in
output. Negative growth, while quantitative, as is economic growth, refers to a decrease in
the national output.

The production possibilities frontier can be used to illustrate economic growth. A production
possibilities curve is a curve showing all the possible combinations of two goods that can be
produced using up all the resources and at a given state of technology. When economic
growth takes place, the production possibilities curve shifts to the right. The curve may shift
to the right and economic growth results if the productivity of labour or other factors of
production improve; if there is an improvement in technology; or if there is an increase in
resources.

Try to find a diagram of a production possibilities curve. Copy it into your notebooks then
shift the curve to the right. The first curve represents production possibilities for the country
NOW, and the second one will represent the production possibilities at a future date, for
example, five years later.

Vconomic development is qualitative and refers to the process by which the standard of
living and the well-being of the entire nation are improved by raising real per capita income.
Vconomic well-being is concerned with the quality of housing, clothing, education, food,
health, peace of mind, security, eradication of poverty and eradication of inequalities in
income and wealth, and so on. If any of these factors increases or improves, there will be
economic development.

Human resource development looks at improving the human resources of labour and
entrepreneurship. Improvement of labour and the entrepreneur means that the productivity
of both will increase. In turn, there will likely be an increase in economic growth and
development.

The human resource can be improved through education, training or retraining, improved
health facilities, improved working conditions and an improvement in the factors of
production that they have to work with.

 
  
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Improved education and training means that labour and entrepreneurship will now have
greater capacity to increase the national output and improve the well-being of the nation.

Through education and training, labourers may learn new and more efficient methods of
production and, thereby, increase the overall output.

The entrepreneur might learn how to better organise and bear risks, thereby, causing
improved output and improved economic well-being.

Vducation, thus, improves the productivity and efficiency of both of the human factors.

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When countries buy goods and services from each other and/or sell goods and services to
each other, this is referred to as international trade. International trade is thus trade among
countries.

International trade is the largest scale in the development of division of labour and
specialisation, wherein countries specialise in the goods and services that they can produce
best and at the lowest cost, and then trade with other countries to get the goods and
services that they do not specialise in. However, you may ask, why did international trade
develop? ret us consider the reasons for international trade.

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c. Climate and soil type differences. Not all countries have the same climate and soil
conditions. Different crops will grow where the climate and soil types differ.

2. Natural resources. These can only be mined where they are found, for example, bauxite.
Some countries are rich in mineral resources; others have little or none at all.

3. Special skills of the labour force. The type of labour determines what is produced. For
example, France produces fashions (clothes), cologne and various types of cheese
because the labour force has special skills and aptitude in these areas.

4. rack of quantity and quality of local goods. Very often, countries import goods and
services because what they produce locally is not enough for local needs and/or
because the quality falls short of what is desirable.

5. Increased transportation and communication. These have made trading on a worldwide

scale much easier.

6. Access to a wider variety of goods and services. Wider variety pleases consumers and
results in an increase in their standard of living. The same is true for countries.

7. Foreign exchange. This is gained from exports and is used to pay for imports.

8. World output increases. This allows the problem of scarcity to be reduced

9. Cheaper goods and services. Countries may import goods and services because they are
cheaper than goods and services sold locally.

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International trade refers to trade among different countries of the world. When countries
trade with each other, a record is kept of the financial transactions between them. This
record is known as the balance of payments. It is a statement of the trade which takes
place between a country¶s residents (individuals, businesses and the government) and the
residents of all foreign countries. Therefore, Jamaica¶s balance of payments shows all the
payments we receive from other countries and all payments which we make to them.

There are three components of the balance of payments account, the current account, the
capital account and the official financing account. Now we are going to look at each account
in turn. Please note that in all parts of the balance of payments account, exports and
income are given a plus (+) sign and imports and payments are given a minus (-) sign.

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This section of the balance of payments is divided into TWO parts: Part (a) the visible trade
account and part (b) the invisible trade account.

The visible trade account records the tangible items ± the imports and exports of goods
only. The difference between the money value of goods imported and goods exported is
known as the visible trade balance or the balance of trade. This balance may be a plus (+)
surplus or a minus (-) deficit. If exports exceed imports, the result will be a surplus or a
favourable balance of trade. On the other hand, if imports exceed exports, there will be a
deficit or unfavourable balance of trade.

The invisible trade account records the intangible items ± the imports and exports of
services, tourist expenditure and income, income from investments abroad and paid to
investments abroad. The services include shipping, aviation and financial services. The
balance on this account is known as the invisible balance and it will be a plus (+) favourable
if exports (income) of the intangible items exceed the imports. Now you can work out for
yourselves what will result in a minus (-) on this account.

The overall current account balance is the difference between our exports of goods and
services and the imports of goods and services. As with the visible and invisible balances,
the overall current balance may be favourable or unfavourable.

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This account records capital flows ± loans and grants to and from other countries and
investments bought and sold. (Note that the income from investments is recorded in the
invisibles of the current account). As with the current account balance, the capital account
balance may be favourable or unfavourable.

Now we need to consider the overall balance of payments figure. This takes into account the
current account balance and the capital account balance. If, overall, the exports exceed the
imports, the overall balance of payments will be a surplus (+) and if, overall, the imports
exceed the exports, the overall balance will be a deficit (-). This means that the country
spent more than it earned.

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Ëltimately, the balance of payments must balance since every export becomes an import
and every import an export. Balancing the balance of payments means that there must
neither be a surplus nor a deficit in the end. A way must be found to finance the surplus or
deficit through external strategies which are shown in the official financing account.

(a) Define the term balance of payments.

(a) What is meant by a country¶s balance of trade?

(b) Calculate the BArANCV OF TRADV for the country

shown below:

Visible trade ËS ($ M)

Vxports 26,000
Imports 29,000
Invisible (net)

Vxports 20,000
Imports c5,000

(d) Name TWO items that are regarded as invisibles.

(e) Calculate the current account balance.

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This account shows how the balance of payments is financed; that is, it shows what is done
with the surplus or the deficit on the balance of payments. ret us look at some ways of
financing a balance of payments deficit.

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a‘ borrowing from international financial institutions like the International Monetary

Fund and the World Bank
a‘ borrowing locally
a‘ drawing down on the official reserves of foreign exchange
a‘ selling an asset locally or overseas

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 a‘ borrowing from other countries
a‘ receiving gifts and grants
a‘ rescheduling of the debt
a‘ Importing on credit. Permission must be granted from the exporting country.

What if the balance of payments showed a surplus? This surplus could be financed or used
in the following ways.

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a‘ lend money, for example to other countries

a‘ purchase an asset locally or overseas
a‘ increase the official reserves of foreign exchange
a‘ pay outstanding debts
a‘ invest the surplus
a‘ give gifts and grants to other countries

Below is an example of the official financing account. Assume that the balance of payments
figure is ËS$c,500m.

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ËS $M

Foreign currency borrowing +800
Official reserves +700
Total +c500

Now we have balanced the balance of payments by eliminating the deficit of ËS $c,500m.

What if a country continues to have an adverse balance of payments, year after year? Well,
that country must find ways of correcting that adverse balance of payments. The country
has a balance of payments problem and must, therefore, earn more by: increasing exports
through:

a‘ offering incentives and subsidies to local manufacturers

a‘ encouraging foreign investment
a‘ extending credit facilities
a‘ reducing spending
a‘ improving marketing skills and sponsoring exhibitions
a‘ devaluing the local currency, which makes exports cheaper

Reducing imports by:

a‘ increasing tariffs (duties) on imported goods and services

a‘ setting quotas to limit the physical amount imported
a‘ requiring special licences to import
a‘ devaluation, which makes imports dearer
a‘ foreign-exchange controls, which limit the amount of foreign currency available to
individuals


  


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