Economics 2.2.1

Economic Growth

Nominal GDP

The market value of all final goods and services produced in an economy during a period of time, measured in today’s prices.

Real GDP

The market value of all final goods and services produced in an economy during a period of time, adjusted for inflation.

Real GDP per Capita

A measure of the total output of an economy that takes real GDP and divides it by the population of people in that economy.

Economic Growth

The increase in national output, measured by the percentage change in Real GDP over time.

Represented by outward shift of PPC.

Calculating Economic Growth (growth in RGDP)

△RGDP / previous period’s RGDP x100%

Limitations of GDP as a measure of Economic Growth

• RGDP excludes all output that is not traded in the market

• RGDP per capita does not indicate how the income is distributed within the economy

• RGDP does not reflect changes in product quality

• GDP does not take quality of life or the value of leisure time into account

• RGDP excludes the effect on the environment

Gross National Income (GNI)

Calculates the total income earned by a nation’s people and businesses, regardless of where it was earned.

GNI per Capita

The dollar value of a country’s final income in a year divided by its population.

Human Development Index (HDI)

An index measuring life expectancy, education, and per capita income indicators which are used to rank countries in terms of human development.

HDI Components

• GNI per capita

• Education (average years of schooling & expected years of schooling)

• Healthcare (life expectancy)