Download Economics X Creativity Multimedia Case 8: Girls Get Married Case

Economics X Creativity
Multimedia Case 8: Girls Get Married
Case Study prepared by:
Prof. Michael FUNG
Dr. Fred KU
Dr. David CHOW
Mr. Sam KONG
Mr. Edwin MOK
Miss Cindy LAU
Mr. Patrick CHEUNG
Video produced by: CUHK Business School (2012)
* Should you have any comment, please email Prof. Fung ([email protected])
P. 1
Introduction
This is a love story of a well-to-do lady. Miss Lee was born with a silver
spoon. She was picky and obstinate, and unsurprisingly she was still
single. Her father had arranged several
blind dates for her, but Miss Li refused all
of them. Next, three men were coming to
the impending blind date. They were Mr.
Ameraica with “Apple” and “Wall’s
Chick” at his hand, Mr. Chaina who had
boundless potential of development; and Mr. Hong Kong whose motto was “be speedy”.
Unfortunately, Miss Lee favored none of them. Actually, she had already fallen in love. He was
the poor yet genuine Mr. Bhutan…
Through the comments by Miss Well-to-Do, the video
depicts the characteristics and problems of the four
economies: America, China, Hong Kong and Bhutan,
which are at different stages of economic
development. The video also puts forth the notion that
GDP is not the only standard of measuring the quality
of living. It is humorous and deepens our
understanding about GDP and the four economies.
Key Question
How is economic growth measured?
Key Concepts
1. Limitations of GDP as a welfare
indicator
2. Determinants of economic growth
3. The relationship between budget deficit
and trade deficit
Learning Outcomes
Understand the costs and benefits of economic growth
Terminology
The terms used throughout this worksheet are in accordance with the Census and Statistics
Department, HKSAR. You may refer to the Department website for the precise definition of the
terms.
P. 2
True / False Questions
1.
One of the reasons why GDP cannot accurately measure the standard of living is that
GDP cannot reflect the income distribution of an economy.
2.
GDP is the only indicator of a society’s well-being.
3.
GDP does not take into account of non-market production.
4.
A fiscal deficit must lead to a trade deficit.
5.
A trade deficit may not imply a current account deficit.
6.
Fiscal deficit can be financed by issuing government bonds.
7.
Education expenditures have no impact on economic growth.
8.
Intellectual property protection can encourage investors to spend more resources on
research and development.
9.
Technological advancement is the only way to stimulate economic growth.
10.
Other things equal, an increase in imports will lead to an increase in aggregate
demand.
MC Questions
1. Which of the following factors is LEAST likely to lead to an increase in research and
development expenditures?
A) Well-defined intellectual property rights.
B) Higher education level.
C) A well-established financial market.
D) An increase in rent.
2. An increase in government consumption expenditure is MOST likely to reduce
A) budget deficit.
B) real output.
C) trade surplus.
D) inflation.
3. Which of the following transactions is included in the account of trade in services of
Hong Kong?
A) A Hong Kong company imported intermediate goods.
B) A Hong Kong company provided legal service to a mainland company.
C) A Hong Kong investor purchased a stock which was listed in the United States.
D) A Hong Kong citizen donated to African children.
P. 3
4. A/An _______ in leisure time and a/an ______ in pollution will make GDP _______ the
standard of living of an economy, holding other factors constant.
A) increase; increase; overstate
B) increase; decrease; overstate
C) decrease; increase; overstate
D) decrease; decrease; understate
5. From society’s standpoint, economic growth is good unless the benefits of growth
A) raise average labour productivity.
B) raise real GDP per capita.
C) raise physical capital.
D) are exceeded by the costs of growth.
6. An increase in per capita real GDP may be the result of an increase in
A) population.
B) interest rate.
C) average labour productivity.
D) government budget surplus.
7. Which of the following statements is correct?
A) Productivity can only be measured by per capita GDP.
B) Government policies have no impact on productivity.
C) The level of per capita real GDP is a good measure of economic prosperity, and
the growth rate of per capita real GDP is a good measure of economic growth.
D) Although level of per capita real GDP differs substantially across countries, the
growth rates of per capita real GDP are nearly the same across countries.
8. Which of the following factors favour(s) the exports of a country?
(i)
Undervalued currency
(ii)
Low cost of production
(iii) High price level
A) (i) and (ii) only.
B) (i) and (iii) only.
C) (ii) and (iii) only.
D) All of the above.
9. In China, exports account for a large proportion of GDP. If the major trading partners of
China are in recession, ceteris paribus, the GDP of China in the short run will
A) increase.
B) decrease.
C) be unchanged.
D) The change of GDP is uncertain.
P. 4
10. The United States is currently suffering from twin deficits (fiscal and current account
deficits) and unemployment. Which of the following situations can alleviate these
problems simultaneously?
A) An increase in exports.
B) An increase in investment expenditure.
C) An increase in government consumption expenditure.
D) An increase in tax rate.
Discussion Questions
1. The video mentions that Bhutan introduced the Gross National Happiness (GNH)1 index
to measure the population’s general level of well-being. There are four components in the
GNH: sustainable development, preservation and promotion of cultural values, natural
environment protection and establishment of good governance. Although Bhutan’s GDP
ranked low in the world, its GNH is among the highest.
(a) Compared with GDP, what are the advantages of using GNH as a welfare
indicator?
(b) On the other hand, what are the limitations of using GNH to make comparison
among countries?
2. In 2007, a study by the International Labour Organization (ILO) estimated that about 22
per cent of the global workforce was working “excessively” long hours, which means
over 48 hours a week. In 2008, another study conducted by Community Business found
that the average weekly working hours of a full-time employee in Hong Kong were as
long as 48.8 hours, which were much higher than the standard (40 hours) recommended
by the ILO. This figure is higher than the average working hour in the United States.
(a) What is the impact of long working hours on Hong Kong’s per capita GDP?
(b) Is it accurate to use GDP to measure the quality of life for a society whose
workers are enduring long working hours?
3. Given the national income accounting equation:
Y(national income) = Consumption(C) + Investment(I) + Government purchases (G) +
Net export(NX).
(a) National saving (S) is defined as S = Y – C – G. Show that S  I = NX.
(b) National saving consists of private saving (SP) and public saving (or called budget
balance) (SG), which equals tax revenue (T) minus government expenditure (G).
Show that (SP I) + (T G) = NX.
P. 5
Graph 1:
United States trade balance from 1980 to 2011
Source: US Census Bureau Foreign Trade Division2
(c) Describe the changes of US trade deficit. Explain why a country with a low
saving rate tends to have a trade deficit.
4. Apart from trade deficit, the US government also suffers from a sizable budget deficit.
When a country suffers from both trade and budget deficits, it is said to be running the
twin deficits.
Graph 2: US Government budget balance as percentage of GDP from 1970 to 2010
Source: The White House, USA3
(a) What is the meaning of a budget deficit? In 2010, was the government revenue
greater than the government expenditure for the United States?
(b) Assume the economy is in its long-run equilibrium. Using AD-AS diagram,
indicate the short-run effects of an increase in budget deficit (an increase in
P. 6
government consumption expenditure) on price level and real output level.
5. Despite suffering from twin deficits in recent years, the United States has achieved a
steady economic growth over the decades. Its per capita real GDP is still the highest in
the world.
Graph 3: Per capita GDP in 2011 price level
Source：World Bank4
Table 1: 2011 QS World University Rankings – Engineering & Technology – Computer Science
Ranking
School
Country
1
Massachusetts Institute of Technology (MIT)
United States
2
Stanford University
United States
3
University of Cambridge
4
University of California, Berkeley (UCB)
5
Harvard University
Source : QS World University Rankings 5
United Kingdom
United States
United States
(a) The sustainable economic growth of the US is mainly due to its high and
continual investment on research and development. Referring to Table 1, give one
reason for the continual investment on R&D in the US.
(b) In China, copyright and patent laws are not strictly enforced in some provinces.
How does it affect investors’ incentive to invest in research and development?
P. 7
Challenging Questions
6. The video mentions that the growth experiences of the United States, China and Hong
Kong were substantially different. Table 2 shows the real GDP growth rates in these three
regions from 2001 to 2010.
Table2: Real GDP growth rates from 2001 to 2010
The annual growth rate of real GDP (%)
2001 2002 2003 2004 2005 2006
8.3
9.1
10
10.1 11.3 12.7
China
Hong
Kong
United
States
2007
14.2
2008
9.6
2009
9.2
2010
10.4
0.5
1.8
3
8.5
7.1
7
6.4
2.3
-2.7
7
1.1
1.8
2.5
3.6
3.1
2.7
1.9
0
-3.5
3
Source：World Bank6
(a) Please calculate the average real GDP growth rate from 2001 to 2010 for the
above three regions by using the geometric means. (Refer to Reference 9 for more
details about geometric mean)
(b) Which economy has the highest average real GDP growth rate from 2001 to 2010?
Table 3: Gini Coefficients in Hong Kong, China and US
Region
Hong Kong
China
US
Gini Coefficient
0.533
0.48
0.45
Year
2007
2009
2007
Source：CIA7
(c)
(i) Which region has the highest value for the Gini coefficient?
(ii) What kind of social problem may be reflected by a high Gini coefficient?
(iii) If a region has a high level of Gini coefficient, what are the potential
problems of using per capita real GDP to measure the standard of living?
(iv) Should a governemnt always aim to minimise the Gini coefficient? Please
discuss.
Table 4: Pollution related articles from SINA.com, Sin Chew Daily and the Oriental Daily.
Sources
SINA.com
Sin Chew Daily
Oriental Daily
Link
http://dailynews.sina.com/bg/chn/chnpolitics/phoenixtv/20120507/14023374485.html
http://www.sinchew.com.my/node/193497?tid=2
http://orientaldaily.on.cc/cnt/news/20110503/00176_098.html
P. 8
Graph 4: Carbon Emissions of China and the U.S. (in 1,000 tonnes)
7,500,000
7,000,000
6,500,000
6,000,000
5,500,000
United States
5,000,000
China
4,500,000
4,000,000
3,500,000
3,000,000
2002
2003
2004
2005
2006
2007
2008
Source: World Bank8
(d) While rapid industrialization boosts economic growth, it may aggravate pollution
problems. What are the potential problems of using per capita real GDP to
measure the living standard?
(e) Despite many regulatory measures, pollution remains a serious problem in China.
Suggest some possible reasons for this phenomenon.
7. The video mentions that the rapid economic growth in China was mainly driven by
export boom.
(a) From the standpoint of macroeconomic stability, what is the potential problem
caused by export-led growth?
(b) Suggest one policy that alleviates this potential problem.
References
P. 9
1.
2.
3.
4.
5.
6.
7.
8.
9.
http://www.grossnationalhappiness.com/
http://www.census.gov/foreign-trade/statistics/historical/
http://www.whitehouse.gov/omb/budget/Historicals
http://data.worldbank.org/indicator/NY.GDP.PCAP.CD/countries/US-CNHK?display=default
http://www.topuniversities.com/university-rankings/world-university-rankings/2011/subjectrankings/engineering/computer-science
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries/US-CNHK?display=default
https://cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html
http://data.worldbank.org/indicator/EN.ATM.CO2E.KT/countries/US-CNHK?display=default
Geometric mean is a type of average. It is usually used for computing the average for growth
rate or percentage changes. It can be calculated using the following formula.
P. 10
Suggested Answers
True / False Questions:
1.T
2.F
3.T
4.F
5.T
6.T
7.F
8.T
9.F
10.F
MC Questions:
1.D
2.C
3.B
5.D
6.C
7.C
8.A
9.B
10.A
4.C
Discussion Questions:
1.
(a) GNH emphasises the quality of life. Factors such as a clean environment, a fair
society, the preservation of culture and good management directly contribute to
the quality of life. On the contrary, GDP fails to capture these impacts when
measuring the standard of living.
(b) There is no commonly agreed standard to measure the quality of life. People from
different cultures may have different value judgement on the same living style,
and so international comparison of GNH may be misleading.
2.
(a) In general, longer working hours is likely to increase per capita GDP.
(b) No. Long working hours eats up the leisure time of workers. Therefore, per capita
GDP is likely to overstate the living standard.
3.
(a) Y=C+I+G+NX
S=Y-C-G
S=C+I+G+NX-C-G
S=I+NX
S-I=NX
(b) S-I=NX
SP+SG-I=NX
(SP-I)+ (T-G) =NX
(c) Starting from 1980, there was an increasing trend of US trade deficit. In the late
90s, trade deficit increased at a much faster pace.
Low saving rate implies a high consumption spending and high government
spending. Since a part of the spending may be spent on buying imported goods
and services, the increase in imports will lead to an increase in trade deficit.
4.
(a) Budget deficit occurs when the total government spending is larger than total
government revenue in a fiscal year. As there is a budget deficit in 2010, the
government revenue is less than the government spending in this year.
P. 11
(b) An increase in government consumption expenditure leads to an increase in
aggregate demand, so both real output and price level will increase.
Price Level
LRAS
SRAS1
P2
P*
AD2
AD1
Y*
Y2
Output
5.
(a) In the United States, there are a lot of high quality universities providing
professional talents for research and development. Also, the US has well-defined
intellectual property protection which can raise the firm’s incentive to invest on
research and development.
(b) When there is no legislation, the intellectual property rights of new technology
may be easily infringed by others. It will significantly reduce the investor’s
expected profit. Therefore, the incentive of research and development may be
very low.
6.
(a) China’s geometric mean9 of real GDP growth rate is about 10.48%. The average
real GDP growth rate of Hong Kong and the United States are about 4.03% and
1.6% respectively.
(b) China.
(c) (i) Hong Kong. (ii) The higher the value for the Gini coefficient in a region, the
greater the income inequality. (iii) If a region has a high value for the Gini
coefficient, GDP may overstate the living standard of the general public.
(iv) A zero Gini coefficient means the income is evenly distributed among all
citizens in society. To achieve this, the cost may be very high, for example,
destroying all financial development in society. Therefore, the cost may be too
high to justify such act. In fact, it is hard to define an optimal level of Gini
coefficient. As a result, it is hard to tell if a government should definitely go for a
small Gini coefficient.
(d) Pollution hurts living standard but GDP does not take it into account. Therefore,
GDP tends to overstate the living standard.
(e) Provincial governments may not strictly enforce regulations and laws in order to
P. 12
boost local economic growth. Moreover, corruption may weaken the effectiveness
of pollution regulation.
7.
(a) If a country’s economic growth is highly dependent on its exports, its economic
performance is likely to be affected by the business cycles of its trading partners.
For instance, if foreign countries suffer from recession, the decrease in export
demand may lead to an economic downturn in the domestic country.
(b) In general, the Chinese government can adopt policy that stimulates domestic
consumption, such as income tax credit or subsidy for the consumption of certain
locally produced goods. These can lower the dependency on exports.
P. 13