Question
Economy A shows improved literacy, higher life
expectancy, and better school enrolment. Economy B shows high per capita income but also high inequality and poor health outcomes. Which development indicator captures BOTH human capability AND inequality-adjustment?Solution
Formula: IHDI = HDI Γ (1 β inequality loss). IHDI < HDI always; the gap quantifies the βlossβ due to inequality. Economy B with high income but high inequality would score much lower on IHDI than HDI.
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