Measuring Growth/Economic Growth – AS/A LEVELS/IB/IAL
Measuring Growth/Economic Growth – AS/A LEVELS/IB/IAL
Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes
Economic Growth
Economic growth can be measured using measures of Real/Gross Domestic Product (GDP). It’s an increase in the productive potential of the economy. It can be shown through an increase in the production possibility frontier (PPF) or an increase in aggregate demand (AD) and aggregate supply (AS).
Measuring Growth
Real/Gross Domestic Product (GDP)
Real/Gross Domestic Product is the sum of all goods and services produced in a country over a specific time period.
GDP per capita
This is GDP per person and a better way to measure standard of living.
Real vs Nominal Values
Real values
Real values do not include the impacts of inflation.
Nominal values
Nominal values are the current values that include the impacts of inflation.
Actual Growth VS Potential Growth
Actual Growth
Actual growth is an increase in Gross Domestic Product (GDP).
Potential Growth
Potential growth is an increase in the productive potential/capacity of the economy.
Limitations of using GDP for comparisons
Quality
GDP does not take into account quality of spend. If the government spends money on the national health service. This does not necessarily mean that patient care will improve. They might spend the money on painting hospital walls rather than on improving patient care.
Subsistence
Low economically developed countries (LEDC’s) tend to have a large amount of their economy growing food for their own consumption. This output is never sold or bought and therefore is not represented in the GDP figure of that country.
Income Inequality
GDP does not take into account income inequality. A large proportion of income is earned by the very wealthy. Therefore the calculation of GDP per capita overvalues the incomes of the majority of the population.
Hidden Economy
There’s a lot of money that is not accounted for in the economy. The GDP figure does not include this output or income. For example ‘cash in hand’ income is not always deposited into bank accounts. This income is therefore not accounted for in the GDP figure.
Indicators of development
Human Development Index (HDI)
The components are:
- Education – comprises of the mean number of years of schooling and the expected years of schooling
- Life Expectancy – a range of 25 years to 85 years
- Standard of Living – measures GNI adjusted to the Purchasing Parity Power per capita
A HDI closer to 1 indicates a high level of economic development, whereas a HDI closer to 0 implies a low level of economic development
Advantages and Disadvantages of using HDI
- HDI does not take into account environmental factors – could be argued that this should be considered
- HDI does not consider the distribution of income which means some countries with a HDI may still have a lot of poverty due to an unequal distribution of income
- HDI allows for a much broader comparison between countries than GDP does
Other indicators of development
Human Poverty Index (HPI)
- Life expectancy
- Education
- Ability of citizens to meet basic needs
There are two types:
- HPI-1: measures the probability of living to the age of 40, the adult literacy rate, the percentage of underweight children and the percentage of people not using improved water sources
- HPI-2: measures the probability of not surviving to at least 60, the percentage of adults without literacy, and those in poverty (income below the 50% median)
Gender-related Development Index
This measures the inequality between men and women by using HDI with the consideration of gender
Quick Fire Quiz – Knowledge Check
1. Distinguish between ‘Real GDP’ and ‘GDP per capita’ (4 marks)
2. Explain the difference between Nominal Values and Real Values (4 marks)
3. Explain the difference between Actual Growth and Potential Growth (4 marks)
4. Identify and explain four limitations of using GDP for comparisons (8 marks)
Next Revision Topics
- Inequality
- Poverty and Inequality
- Strategies to promote Growth and Development
- What factors limit Growth and Development?
A Level Economics Past Papers
