Doruelo, Jasmin P.

BS Accountancy 2-4

1. Basic Economic Problems

 The fundamental economic problem is the issue of scarcity and how best to produce and
distribute these scare resources.

 Scarcity means there is a finite supply of goods and raw materials.

 Finite resources means they are limited and can run out.

 Unlimited wants mean that there is no end to the quantity of goods and services people would
like to consume. Because of unlimited wants – People would like to consume more than it is
possible to produce (scarcity)

2.) 3 Classifications of Countries according to World Bank

Updated Thresholds

New thresholds are determined at the start of the Bank’s fiscal year in July and remain fixed for 12
months regardless of subsequent revisions to estimates. As of July 1 2018, the new thresholds for
classification by income are:

Threshold GNI/Capita (current US$)

Low-income

Lower-middle income 996 - 3,895

Upper-middle income 3,896 - 12,055

High-income > 12,055

Changes in Classification

The following countries have new income groups:

Country Old group New group

Argentina Upper-middle High-income

Armenia Lower-middle Upper-middle

 Croatia Upper-middle High-income

Guatemala Lower-middle Upper-middle

Jordan Lower-middle Upper-middle

Panama Upper-middle High-income

Syrian Arab Rep. Lower-middle Low-income

Tajikistan Lower-middle Low-income

Yemen Rep. Lower-middle Low-income

The country and lending groups page provides a complete list of economies classified by income, region,
and lending status and links to previous years’ classifications. The classification tables include all World
Bank members, plus all other economies with populations of more than 30,000. The term country, used
interchangeably with economy, does not imply political independence but refers to any territory for
which authorities report separate social or economic statistics.
3.) What is growth and development?
 concerned with the unfulfilled material needs of people.
 Critical approach contends that development is about meeting the basic material needs of
people and also the non-material.
 Communities can become self-sufficient thriving at balancing their activities with nature.
 the competitiveness index considers GPD per capita, the growth of GDP by country, exports of
goods and commercial services, terms of trade and the ratio of trade to GDP. Among the more
subjective factors of economic growth and development that the Competitiveness Index
incorporates are world education rankings, employee training, innovative capacity, language
skills, quality of life, the attitudes of those members of society with direct impact on
competitiveness and the general value system. In short, the Competitiveness Index assumes an
all-encompassing approach to economic growth and development.
4.) Objectives of Development ( https://www.phileconomist.com/2013/03/the-three-objectives-
of-development.html )
1. "To increase the availability and widen the distribution of basic life-sustaining goods such as food,
shelter, health, and protection."

2. "To raise levels of living, including, in addition to higher incomes, the provision of more jobs, better
education, and greater attention to cultural and human values, all of which will serve not only to
enhance material well-being but also to generate greater individual and national self-esteem."
3. "To expand the range of economic and social choices available to individual and nations by freeing
them from servitude and dependence not only in relation to other people and nation-states but also to
the forces of ignorance and human misery."

5.) Stages of Economic Growth

Rostow's Five Stages of Economic Growth Model

Walt Rostow took a historical approach in suggesting that developed countries have tended to pass
through 5 stages to reach their current degree of economic development.

These are:

1. Traditional society. This is an agricultural economy of mainly subsistence farming, little of which
is traded. The size of the capital stock is limited and of low quality resulting in very low labour
productivity and little surplus output left to sell in domestic and overseas markets

2. Pre-conditions for take-of. Agriculture becomes more mechanized and more output is traded.
Savings and investment grow although they are still a small percentage of national income
(GDP). Some external funding is required - for example in the form of overseas aid or
perhaps remittance incomes from migrant workers living overseas

3. Take-of. Manufacturing industry assumes greater importance, although the number of

industries remains small. Political and social institutions start to develop - external finance may
still be required. Savings and investment grow, perhaps to 15% of GDP. Agriculture assumes
lesser importance in relative terms although the majority of people may remain employed in the
farming sector. There is often a dual economy apparent with rising productivity and wealth in
manufacturing and other industries contrasted with stubbornly low productivity and real
incomes in rural agriculture.

4. Drive to maturity. Industry becomes more diverse. Growth should spread to different parts of
the country as the state of technology improves - the economy moves from being dependent on
factor inputs for growth towards making better use of innovation to bring about increases in real
per capita incomes

5. Age of mass consumption. Output levels grow, enabling increased consumer expenditure. There
is a shift towards tertiary sector activity and the growth is sustained by the expansion of a
middle class of consumers.

6.) Basic Indicators of Development

Key Indicator # 1. Per Capita Income
- an LDC is defined as one in which per capita real income is low when compared with
that of USA, Canada, Australia and Western Europe. Statistical studies show low-in-
come countries are much poorer than advanced countries like the USA.
 Key Indicator # 2. Poverty
- there is inequality in the distribution of income. Many people in LDCs do not get the
minimum level of income necessary for a minimum caloric intake are said to be
living below the poverty line.

Key Indicator # 3. Social and Health Indicators

- These show the effects of poverty in poor countries. Life expectancy at birth is low,
but rate of infant mortality is high. The percentage of illiterate people in total
population is high. Educational attainment by most people is modest, reflecting low
levels of investment in human capital.

Key Indicator # 4. Operational Pattern / Occupational Pattern

- It is widely believed that the countries in which most of national output or national
income is derived from the primary sector (i.e., agriculture, forestry, animal
husbandry, mining etc.) are underdeveloped.
- the greater the contribution of agriculture, the more economically backward a
country is supposed to be. Most people in LDCs live in rural areas and work on
farms.
- In advanced countries most people work on factories or are engaged in trade and
professions. Similarly, the contribution of agriculture and allied activities to net
national product is quite high.

7.) The five characteristics of Characteristics of a Developing World:

1. Participation– People are able to participate fully in economic life and have greater say over
their future. People are able to access and participate in markets as workers, consumers and business
owners. Transparency around and common knowledge of rules and norms allow people to start a
business, find a job, or engage in markets. Technology is more widely distributed and promotes greater
individual and community well-being.

2. Equity-More opportunities are available to enable upward mobility for more people. All
segments of society, especially poor or socially disadvantaged groups, are able to take advantage of
these opportunities. Inequality is declining rather than increasing. People have equal access to a more
solid economic foundation, including equal access to adequate public goods, services and infrastructure,
such as public transit, education, clean air and water.

3. Growth– An economy is increasingly producing enough goods and services to enable broad
gains in well-being and greater opportunity. Good job and work opportunities are growing and incomes
are increasing, especially for the poor. Economic systems are transforming for the betterment of all,
including and especially poor and excluded communities. Economic growth and transformation is not
only captured by aggregate measures of economic output (such as GDP), but must include and be
measured by other outcomes that capture overall well-being.

4. Stability- Individuals, communities, businesses and governments have a sufficient degree of

confidence in their future and an increased ability to predict the outcome of their economic decisions.
 Individuals, households, communities and enterprises are secure enough to invest in their future.
Economic systems are increasingly resilient to shocks and stresses, especially to disruptions with a
disproportionate impact on poor or vulnerable communities.

5. Sustainability– Economic and social wealth is sustained over time, thus maintaining inter-
generational well-being. Economic and social wealth is the social worth of the entire set of assets that
contribute to human well-being, including human produced (manufactured, financial, human, social) and
natural capital. In the case of natural capital, human use must preserve or restore nature’s ability to
produce the ecosystem of goods and services that contribute to human well-being. Decision-making
must thus incorporate the long-term costs and benefits, and not merely the short-term gains, of human
use of our full asset base.