Material & Non-material Living Standards

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  • 0:03 Background on Living Standards
  • 0:27 Material Living Standards
  • 1:22 Non-Material Living Standards
  • 2:49 Macroeconomic Policy
  • 3:32 Microeconomic Policy
  • 5:36 Lesson Summary
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Lesson Transcript
Instructor: Martin Gibbs

Martin has 16 years experience in Human Resources Information Systems and has a PhD in Information Technology Management. He is an adjunct professor of computer science and computer programming.

An economy can't grow if its citizens can't grow. In this lesson, we'll discuss material and non-material living standards and how living standards are affected by economic policies and decisions.

Background on Living Standards

Think of a living standard as a level in an old-school video game. You either get past level five or you don't. If you compare this to an entire country or economy, we're talking about the entire society getting past level five. What does that mean? We can measure the standard of living by looking at material standards and non-material living standards.

Material Living Standards

Material living standards refer to goods and services. In a game, it is the equipment we collect to complete our missions. In the real world, material standards include cars, houses, health services, etc. Material living standards are measured by the total number of goods and services available. This is measured by gross domestic product (GDP).

As more and more goods and services are produced, it leads to an increase in employment. In turn, people buy more goods and the cycle continues. When you earn more money, you have more opportunity to purchase not only basic goods but things like cars, computers, and a nicer home. As in a video game, if you have a small amount of coins, you can only buy basic armor. However, if you take extra steps to earn more coins, you can purchase better gear and vastly improve your standard of living.

Non-Material Living Standards

We can't measure non-material standards like we can material goods. There is no equivalent to GDP. The non-material standards include the following:

  • Environment: This includes clean air and water
  • Crime rates: High crime rates discourage citizens from going out and frequenting businesses
  • Free elections: The right to vote to choose government representation
  • Freedom of speech: Encourages participation in society as well as the economy
  • Time off work: Time given to rest can improve productivity

While it is hard to measure non-material standards, there is a measure that looks at a broader picture: the OECD Better Life Index. The OECD Better Life Index looks at the living standards of 38 countries. Now that we know what impacts the standards of living, we can examine methods for improving these standards.

These policies can happen on a macroeconomic level, that is the entire economy/society. They can also be applied at a microeconomic level, at an industry or company level. In the example of our game, a macroeconomic change impacts the entire game (e.g., increasing the rate at which coins are earned). At a microeconomic level, we might tweak certain dungeons to have more items to collect.

Macroeconomic Policy

In Australia, the Reserve Bank of Australia (RBA) sets the national interest rate. This rate affects rates of interest paid on loans. Interest rates have an impact on living standards: As rates climb, demand for goods and services will slow down. People don't want to take out high-interest loans for expensive cars or homes. However, when the rates go down, people are more inclined to borrow money.

Income taxes also can drag down standards of living. As taxes rise, it reduces the amount of disposable income available for material goods. If your game took away 50% of your gold each time you bought an upgrade, you wouldn't buy as many upgrades.

Microeconomic Policy

Standards of living are also impacted by microeconomic policies, either at an industry or organizational level. These include trade liberalization, deregulation, and labor market reform.

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