A-level economics: 2.1 Measures of economic performance - content

rising GDP

positive economic growth

higher incomes

more jobs

higher consumption

higher standard of living

falling GDP

negative economic growth

lower incomes

less jobs

lower consumption

lower standard of living

real GDP

adjusted for inflation

calculated using constant prices

prices held at level of chosen base year

nominal GDP

not adjusted for inflation

calculated using current prices

e.g. nominal vs real GDP - pizzeria

year 1: sold £500,000 worth of pizza

year 2: sold £900,000 worth of pizza

80% increase - doesn’t mean pizzeria produced 80% more pizzas in year 2 than year 1, price likely increased

year 1: 50,000 x £10 = £500,000

year 2: 60,000 x £15 = £900,000

increase in income due to increase in price & increase in output

must consider changing prices to find how much of increase in GDP was due to higher output

to find change in output - hold price constant (£10 - price of pizza in year 1))

year 1: 50,000 x £10 = £500,000

year 2: 60,000 x £10 = £600,000

in real terms, output increased by 20% not 80% (calculated without change in price to find change in output)

total GDP

economic output of country

GDP per capita

GDP divided by population = economic output per person

value of GDP

nominal GDP

measures monetary worth of goods & services at current prices

not adjusted for inflation

volume of GDP

real GDP

measures physical quantity of goods & services produced

adjusted for inflation

GNI

GDP + net primary income + net secondary income

total foreign & domestic income earned by country’s residents

net primary income

wages, salaries, other income earned by country’s residents working abroad

earnings from foreign investments (dividends & interest)

net secondary income

transfers of money between countries

e.g. remittances (money sent as gift) from foreign workers to families in home countries, international aid

GNP

total value of goods & services produced by country’s residents & companies, regardless of where they are located

(GDP has to be produced within country)