Index numbers

Economic Growth is the increase in the production and consumption of goods and services in an
economy over time.

Economic Growth is measured is real GDP, and is shown by an increase in real GDP.

GDP per capita is the GDP, divided by the population,

Index numbers

 A simple statistical technique for helping economists to interpret analyse and compare large
numbers

Cross Country comparison

 It is useful for cross country comparison, you equate all country’s base years data to 100.
 This does not mean that the underlying data is the same in every country
 For bar charts, you take one countrys data as the base value, and compare it.

Index numbers uses

 To make long and complicated numbers simpler

 To allow quick and easy data comparisons

How to use base numbers

 Base year (year 1) always has an index value of 100

Raw number
 Index number = x 100
Base year raw number
Deflators

 Nominal GDP is the total monetary value of all the goods and services produced in the
economy
 If it rises this may be because more goods and services were produced, or that prices rose,
or a combination of both
 To determine whether an economy has actually produced more goods and services you strip
away the ‘inflated’ part of nominal GDP, This gives you real GDP
 This gives us real GDP (nominal GDP adjusted for inflation)
 To do this you must use a ‘deflator’

How to do it

 Normal GDP rate= Percentage -> index number (+100)

 Inflation= Percentage -> whole number (1.0)

Normal GDP Rate

 = answer -100= Real growth rate
Inflation
Percentage change

 we need to factor in changes of the population if we are to have an accurate per capita
figure.
 Iit is handled in exactly the same way as price inflation i.e. by using a deflator

Percentage change, using index numbers

Difrrence
 Percentage Change= x 100
Original