Posted by Abd. Ghafar Arif RM
The simplest way in which economics can be classified is according to the value of their Gross National Product (GNP) per capita. Every economy can be classified as low income, middle income, (subdivided into lower and upper middle), or high income. Low-income and middle-income economies are sometimes known as developing economies. Classifying economies in this way is convenient, but as we have seen the level of development of a country goes beyond relative levels of income. It can also be misleading if it is assumed that all countries classed as 'developing' are at the same stage of development. In fact economies grouped together in terms of income may well be at completely different stages of development. Nevertheless, categorizing economies according to their levels of income provides a simple and measurable way of grouping economies.
The income groups were categorized as follows in 2000:
LOW INCOME $755 or less
MIDDLE INCOME $756 to $2,995 (lower middle)
$2,996 to 9,265 (upper middle)
HIGH INCOME $9,266 or above
The thresholds between the categories are updated each year to account for international rates of inflation. As a result the thresholds are constant in real terms overtime.
Classification according to levels of indebtedness
Sometimes it is useful to classify developing economies according to the degree of their indebtedness. These categories are: severely (or highly) indebted, moderately indebted and less indebted. The categorization depends upon a number of measures of international indebtedness, the most important of which is the proportion of GNP which is devoted to servicing the debt. The fact that such a categorization is used is a reflection of the extent to which international indebtedness is an obstacle to economic development.
Source: Colin Bamford, Keith Brunskill, Gordon Cain, Sue Grant, Stephen Munday, Stephen Walton, As Level and A Level Economics, University of Cambridge, 2002
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