Indicators of Macroeconomic Performance

AS Economics

Aims and Objectives

Aim: Understand different measures of growth Objectives: Define GDP, Real GDP and GDP Per Capita Explain what are the best measures of growth and living standards Calculate index numbers Analyse index numbers Evaluate the usefulness of index numbers

Starter
Define GDP

Why might GDP not be the best measure of economic growth and living standards?

GDP
Currently around 1.394t

Nominal figure stated at current prices not taking into account inflation
Nominal figure doesnt reflect a true measure of the actual increased output of the economy as part of the increased output could be made up of price increases. GDP could increase by 200m but 150m could represent price increases.

Real GDP
GDP figures adjusted for inflation

GDP rises by 200m but inflation was 3% what is the actual increase in GDP?
200m 3% = 194m Tells us how much real output of economy increases Better measure of economic growth over time.

GDP Per Capita

GDP divided by the population a measure of living standards. The amount available to the average person to spend If rising then living standard are rising $36,100 in UK GDP Per Capita can rise, yet the distribution of income can become more unequal!

Index Numbers
Used as a measure of comparison for economic data such as inflation and GDP. Worksheet

Year 1 Commodity A B C Price 0.05 1.00 2.00

Index

Year 2 Price

Index

100 100 100

0.10 0.80 3.00

200 80 150

D
E F G H I J K L

26.00
12.00 1.23 4.51 0.72 18.00 19.75

1.4%
100
100 100 100 100 100 100 100 100

14.00
13.49 1.25 4.60 0.74 15.23 15.99 99.99 0.25

53.8
112.4 101.6 101.9 102.8 84.6 81 99 50

100.99 0.50

Total Average Price Change

1217.2 101.4

Benefits and Limitations of Using Index Numbers

Brainstorm the benefits and limitations of using index numbers.

Plenary/Feedback