Differences in economic development between countries — practice question

Study the source material carefully before you answer Question 1. Source extract: Happiness Bhutan fact file (2018): Population 0.8m; GDP per head $3250; Government spending $450 m; Government tax revenue $380 m; World Happiness Index ranking 95th; Human Development Index ranking 134th. The United Nations has issued a World Happiness Index every year since 2012. This index places countries in order using life expectancy, freedom, social support, trust, generosity and GDP per head. In 2019, New Zealand was placed 8th in the World Happiness Index. The governments of both Bhutan and New Zealand now take into account several influences on the happiness of their populations. Although more than half of Bhutan’s labour force is employed in agriculture, most people in New Zealand work in the tertiary sector. Working conditions, working hours, the nature of work and pay are different in the primary and tertiary sectors. Productivity is higher in every sector in New Zealand than in Bhutan. This is partly because New Zealand invests more in capital goods and education. New Zealand also has a higher GDP per head. GDP per head ($) may affect net migration (number of people) as shown for selected countries in 2017 in Fig. 1.1. Fig. 1.1 GDP per head ($) and net migration (number of people) of selected countries 2017. The countries shown are Bhutan, Cyprus, Kenya, Mozambique, New Zealand and Slovenia. The diagram key shows net migration (number of people) and GDP per head ($). In its 2019 budget, the New Zealand government stated that it would measure progress not through rises in GDP but through improvements in the quality of people’s lives. To do this, it announced extra spending on some areas including mental health, child poverty and pollution. Some economists criticised this view. They argued that the best way for the government to improve living standards is to cut income tax rates. This cut could alter government spending and the quantity of products that people purchase, including cars. Tax revenue rose in New Zealand in 2019, partly because revenue from corporation tax increased. However, firms’ future profits were hard to predict. This was because of uncertainty about what would happen to its GDP and its corporation tax rates.