Macro Lec 3 - GDP and the standard of living 

calculating real GDP per capita

  • nominal GDP is GDP at current prices and has not yet been adjusted for inflation

  • initially measured in monetary terms - nominal GDP

  • real GDP has been adjusted for inflation - also known as GDP at constant prices

  • if GDP increases due to a rise in inflation, then not make us better off, therefore not effective

  • changes in the size of population must also be taken into account, this means that when measuring GDP must effectively measure GDP per capita

  • example: when addressing immigration, if more migrants create a positive net flow of migration to the UK which may make our real GDP better, however, may not increase GDP/capita

global differences in real GDP per capita

  • real GDP statistics used to make comparisons between standard of living in diff countries
  • data for diff countries must be converted to a common currency - this is done at purchasing power parity
  • purchasing power parity: Purchasing Power Parity is the exchange rate needed for say $100 to buy the same quantity of products in each country. PPPs measure the total amount of goods and services that a single unit of a country’s currency can buy in another country.
  • PPP effectively adjust for cost of living differences and reveals what nominal national incomes can really buy