THE LESTER VAUGHAN SCHOOL

PRINCIPLES OF BUSINESS
SOCIAL ACCOUNTING AND GLOBAL TRADE - NOTE

STANDARD OF LIVING – this refers to the financial wellbeing of a population. It looks at whether a country’s
population can enjoy and access food, clothing, shelter and higher levels of consumption.

Indicators and factors that determine of a country’s standard of living

 The level of consumer spending - how much money persons in a country spend and what they spend it
on. Persons’ consumption of goods and services will increase as the standard of living increases.
 Average disposable income of the population – increased disposable income (what persons have to
spend after tax and other deductions), leads to increased standard of living.
 Population – a younger, healthier and more educated population is usually more productive and earns
a higher level of disposable income and this leads to a higher standard of living.
 Increasing access to modern technology –
 Level of investment in research and development –
 Access to natural resources –
 Political stability –
 Increasing levels of national ownership of capital equipment – a country’s increased capital equipment
such as equipment robots used to make motor vehicles increases productivity and by extension
standard of living.

QUALITY OF LIFE – this refers to all the factors that determine the ability of the population to enjoy the
benefits of its wealth such as quality of health care, education and crime levels.

Indicators of quality of life

 Level of crime
 Health, education and recreational facilities
 Diet and nutrition levels
 Life expectancy
 Infant mortality – the number of infant (1 year and younger) deaths in every 1000 births.
 Access to public utilities such as water and electricity

TEXTBOOK REFERENCE: Pages 319 – 341

NATIONAL INCOME – this refers to the national product or the gross national product (GNP). It is the value of
goods and services produced by the country over a designated period expressed in money terms.

Methods used to measure National Income

 Income Method - adding the value of all forms of income.
 Output Method – adding the total net output of every form of production.
 Expenditure Method – the total measure of all expenditure by consumers, firms and government.

Measures of National Income

 Gross Domestic Product (GDP) – the total value of output produced in a country in one year, using
resources within the country.
 Gross National Product (GNP) – the total value of output produced within a country in one year, plus
net property income from abroad.
 Net National Income (NI) – the total value of output produced within a country in one year plus net
property income from abroad less capital consumption (depreciation).

ECONOMIC GROWTH – an increase in a country’s GDP.

 Negative economic growth – this is any fall in real GDP, which can lead to a recession. A recession
refers to at least six (6) months of falling real GDP accompanied by unemployment.

ECONOMIC DEVELOPMENT – increases in the quality of life of a country’s citizens.

INTERNATIONAL TRADE – trade between countries.
VISIBLE TRADE – the import and export of goods.
INVISIBLE TRADE - the import and export of services.
BALANCE OF TRADE – a part of the balance of payments account that records the value of a country’s
visible exports and the value of its visible imports.
FOREIGN DIRECT INVESTMENT (FDI) – A company based in one country makes a physical investment into
building operations. For example: a factory or offices, in another country.

TEXTBOOK REFERENCE: Pages 319 – 341

BALANCE OF PAYMENTS – a financial account that records the value of all payments made abroad by a
country and payments received from abroad over a period of time.

Measures to correct Balance of Payments Deficits

 Reduce spending by increasing taxes, reducing wages in the public sector, reducing government
spending on education, health and other social services.
 Increasing exports.
 Devaluation – this is the reduction in the value of currency compared with other currencies under a
system of fixed exchange rates.
 Import controls – imposing of tariffs, import licenses and quotas.
 External borrowing.

MAJOR ECONOMIC PROBLEMS IN THE CARIBBEAN

 High levels of unemployment
 High population density, which put pressure on local services such as education and health care.
 Emigration – a person who leaves a country to in another. This can result in brain drain and a reduction
in the labour force.
 Debt levels – Many Caribbean countries have high debt and therefore resources that can be spent on
improving economic growth and standard of living are used to pay off debts.
 Sourcing capital – Many Caribbean countries find it difficult to source capital at home or overseas to
fund projects.
 Lack of natural resources
 Economic dualism – an economy in which there is development and poverty existing together.
 Lack of industrialization – Industrialisation is when a society goes from having mainly agricultural
industries towards having manufacturing industries. A lack of industrialisation results in a lack of GDP,
the research and development and technology.
 High levels of inflation – a situation where prices are persistently rising and the real value of money is
declining.

TEXTBOOK REFERENCE: Pages 319 – 341

SOLUTIONS TO THE MAJOR ECONOMIC PROBLEMS IN THE CARIBBEAN
 Access to Foreign Direct Investment (FDI) – This is helpful as it provides jobs, technology, capital and
skills for the host country.
 Development of human resources by:
o Improving school infrastructure and school equipment
o Raising teaching and educational standards.
o Raising the school leaving age.
o Increasing student places in technical schools and in work – based training programmes.
o Expanding universities and encouraging more students to enroll.
o Developing university courses that are geared towards the needs of modern technology.
o Providing opportunities for life long learning
 Development of the manufacturing sector
 Nationalisation – transferring industries and firms form private to public sector.
 Privatisation – transferring state owned corporations into private firms

TEXTBOOK REFERENCE: Pages 319 – 341