Chapter 11, Problem 1P

To determine

Concept Introduction

Poverty: Poverty refers to a state of living by a person under which she/he has insufficient resources to satisfy the basic needs of living, such as food, shelter and clothing.

Consumer Price Index (CPI): This refers to the index, which shows the change in the price of a product over a period of time, purchased by a consumer or household.

Gross Domestic Product (GDP): This refers to a value that measures the size of the economy of a country. It determines the value of all the goods and services which are produced in a year in the country.

Explanation of Solution

a. The factor by which the poverty threshold has increased from 1983 to 2013.

Given,
Poverty threshold in 1983 is $5,180.
Poverty threshold in 2013 is $11,490.

• The poverty threshold is a measure which determines the population which is considered poor in a country. The population that falls under the poverty threshold is labeled as poor.

The formula to calculate an increase in poverty threshold is as follows:

Substitute $11,490 for poverty threshold in 2013 and $5,180 for poverty threshold in 1983 in the above formula:

• The threshold has increased to 221.81% in 2013 from 1983, hence it can be said that the threshold has almost doubled.

Conclusion:

Thus, the threshold is doubled between 1983 and 2013.

b. The factor by which the CPI has increased from 1983 to 2013.

Given,
CPI in 1983 is 99.6.
CPI in 2013 is 233.

The formula to calculate an increase in CPI is as follows:

Substitute 233 for CPI in 2013 and 99.6 for CPI in 1983 in the above formula:

The CPI has increased to 233.94% in 2013 from 1983, hence it can be said that the CPI has almost doubled.

Conclusion:

Thus, the CPI is doubled between 1983 and 2013.

c. The factor by which the GDP has increased from 1983 to 2013.

Given,
GDP in 1983 is $15,525.
GDP in 2013 is $53,086.

The formula to calculate an increase in GDP is as follows:

Substitute $53,086 for GDP in 2013 and $15,525 for GDP in 1983 in the above formula:

The GDP has increased to 341.94% in 2013 from 1983, hence it can be said that the GDP has almost tripled.

Conclusion:

Thus, the GDP is tripled between 1983 and 2013.

d. Effect on economically poor people over the years.

• It can be seen in parts a, b and c that between 1983 and 2013, the poverty threshold and CPI has doubled, whereas the GDP of the country has tripled.

• This implies that there is less effect on the poverty and threshold while the incomes of people have risen during the period by three times.

• Hence, the poor is not much affected as the rise in incomes is more than the rise in poverty and the rise in prices of commodities.

Conclusion:

Thus, the poor are less affected as compared to the GDP of a country.