Economic Concepts: Unrecorded Activity, GDP, HDI & More
Understanding Key Economic Concepts
Unrecorded Economic Activity
Unrecorded economic activity refers to economic transactions that are not officially documented or taxed. This includes activities like moonlighting and other informal work.
Gross Domestic Product (GDP)
GDP represents the total value of all goods and services produced within an economy during a specific period.
Human Development Index (HDI)
The HDI is a composite index that measures development using indicators of health, education, and income. It includes:
- Life expectancy at birth
- Mean and expected years of schooling
- GNI per capita (PPP US$)
The HDI is a useful indicator of economic development.
Negative Externalities of Production
A negative externality of production occurs when the production of a good or service creates external costs. For example, palm oil production can lead to:
- Misallocation of resources
- Market oversupply (MSC > MSB)
- Social inefficiency (MSC ≠ MSB)
- Welfare loss to society
Concessional Loans
Concessional loans are a form of aid with favorable terms, such as:
- Very low or no interest rates
- Extended repayment periods (25-40 years)
- Grace periods
- Repayment in local currency
Poverty
Poverty is defined as having insufficient income to meet basic human needs, often measured as living on less than US$2 (PPP) a day.
Aggregate Demand (AD) and Output
An increase in investment, such as a hydroelectric project, shifts the AD curve to the right, leading to higher output and increased employment.
Production Possibilities Curve (PPC)
Improved literacy rates enhance human capital, shifting the PPC outward and increasing production possibilities.
World Bank: Strengths
The World Bank has several strengths:
- Provides a reliable power supply and reduces electricity costs
- Stimulates investment, job creation, and growth
- Offers concessional loans to help poor countries avoid unsustainable debt
- Supports sustainable development and aims to cut emissions
- Funds essential infrastructure to promote economic growth
- Supports human capital development
World Bank: Limitations
However, the World Bank also has limitations:
- Imposing conditions on borrowing can harm poor countries
- The US has undue influence over policy through the appointment of the World Bank President
- Dominated by rich countries with strong US influence
- Priorities of major donors may not align with those of developing countries