2. OUTPUT
The output of an economy is also known as National income.
This measures the total value of goods and services produced
within the economy over a period of time
When National income is growing we refer to this as Economic
Growth
National income is usually measured by GDP or Gross
Domestic Product
3. Measuring National Income
We can measure total output in three ways because the
value of output is also equal to the total amount spent on
purchasing it, which in turn is used to pay for the
resources used to produce it, i.e. incomes such as wages
and profits
output = national income = national expenditure
Draw a circular flow of income diagram to show this
5. ECONOMIC GROWTH
Remember though that inflation can confuse these figures
and make it seem like the economy is growing quicker
than it really is.
GDP figures that have taken away the effects of inflation
are known as Real GDP (money GDP can be distorted
by inflation)
Year 1 Year 2 Year 1 Year 2
GDP = $100bn GDP = $110bn GDP = $100bn GDP = $110bn
But inflation was 10% Inflation was only
so there has been no 3% so there has
change in real GDP been a 7% increase
in real GDP
6. Is Economic Growth always good
The benefits of economic growth are:
more goods and services, more wants satisfied
increased employment opportunities and incomes
increased sales, profits and business opportunities
low price inflation if output growth keeps pace with demand
increasing tax revenues for a government to improve public services
and public infrastructure
improved living standards
Possible problems with growth are:
xscarce resources are used up at a faster rate
xincreasing pollution and damage to natural environment
xpeople are not necessarily better off if growth is achieved, for example
by producing more weapons, cigarettes, coal-fired power stations or even
more cars, televisions and computer games. What about peoples’ quality
of life?
7. The standard of Living
This is usually measured by GDP per head of
population (GDP per capita)
Remember this just gives us an average income, it
doesn’t mean that everyone has this level of income.
Some may be rich and some poor (find out the GDP
per capita in China)
8. Measuring economic welfare
Simply measuring economic grows over time reveals very little about how
standards of living are changing.
Here are two possible measures of living standards:
Real GDP per capita Human Development Index
A measure of the average income per person. If (HDI)
real GDP grows but the population increases at a A wider measure that includes:
faster rate then average income per head will fall.
•real GDP per capita (adjusted for
differences in exchange rates between
But it takes no account of: countries)
•how income is distributed (a few very rich people •educational attainment (how many
can skew the average upwards) years on average a person aged 25 will
•what people can buy (the availability of goods have spent in education and how many
and services may be poor) years a young child entering school now
can be expected to spend in education
•the quality of and access to education, health during his or her life)
care, clean water and sanitation
•life expectancy
•the impact of growth on the natural environment
How else could we measure the quality of life in a country?
9. Other indicators of the quality of
life
Gross National Happiness index (originally used in Bhutan)
Genuine Progress Indicator
Ownership of consumer durables such as televisions, dish washers, home
computers
Estimates of pollution levels, and the general state of the environment
Home ownership levels and other indicators of household wealth
Percentage of the population living in absolute poverty (Less than 1$ a day)
SOCIAL WELFARE STATISTICS TO MEASURE THE QUALITY OF LIFE
the number of patients per doctor - a measure of health provision in a country
hospital waiting lists for important operations
the number of children per thousand of the population who die each year (infant
mortality rates)
the average food intake per person (measured by average calorific intake)
literacy rates
average educational attainment at different age levels
crime rates
divorce rates
Gender, racial and religious tolerance
