Studyledge

Living Standards, Poverty and Population: Question 6

Syllabus 5.1

Multiple choice 1 mark

In the country of Larenta, real GDP was $40 billion in 2020, when the population was 8 million. By 2025, real GDP had grown to $54 billion and the population had grown to 9 million. Over the same period, Larenta's Human Development Index (HDI) fell slightly, from 0.71 in 2020 to 0.68 in 2025, because a disease outbreak reduced average life expectancy even though average years of schooling stayed the same.

Which of the following correctly describes what happened to Larenta's real GDP per head, and correctly explains why its HDI still fell?

Choose an answer to check it, then compare with the worked solution below.
Show worked solution Hide worked solution

Worked solution

Step 1: Calculate real GDP per head in each year

Real GDP per head =real GDPpopulation=\dfrac{\text{real GDP}}{\text{population}}

2020: 40 billion8 million=5,000\dfrac{40\text{ billion}}{8\text{ million}} = 5{,}000 per head, i.e. $5,000 per head.

2025: 54 billion9 million=6,000\dfrac{54\text{ billion}}{9\text{ million}} = 6{,}000 per head, i.e. $6,000 per head.

So real GDP per head rose from $5,000 to $6,000 between 2020 and 2025, this already rules out option A, which claims real GDP per head fell.

Step 2: Explain why the HDI still fell

The HDI is not based on income alone: it combines three dimensions, income, health (measured by life expectancy at birth) and education (measured by years of schooling). Even though Larenta’s income per head rose, its life expectancy fell because of the disease outbreak, pulling its health dimension down. Because years of schooling stayed the same, it did not offset this fall. With one of the three components falling while the others stayed flat or rose, the overall HDI fell slightly, from 0.71 to 0.68.

This shows that a rise in real GDP per head does not guarantee an improvement in the HDI. The HDI can fall if health or education outcomes worsen enough to outweigh income gains, which is exactly option B\boxed{\text{option B}}.

Why the other options are wrong

  • A: reverses the direction of change, real GDP per head actually rose (from $5,000 to $6,000); it did not fall.
  • C: wrongly assumes the HDI is driven solely by income; because it also reflects life expectancy and schooling, it can fall even while income rises.
  • D: wrongly assumes all three HDI components must move together; the life-expectancy component falling on its own was enough to pull the index down, regardless of schooling being unchanged.

Final answer

  • Real GDP per head rose from $5,000 to $6,000, but the HDI fell because its life-expectancy component declined, option B.