AS Macroeconomics notes
2.1- Measures of economic performance
2.1.1- Economic growth
a) Rates of change of real gross domestic product (GDP)
When he GDP is increasing rapidly, the economy is growing fast because the output of the economy as
a whole must be increasing, causing a rise in income per person.
If GDP is falling, it either means that the population has increased by a large amount without a rise in
GDP, or that the economy is experiencing negative growth which is bad for the economy.
b) Real and Nominal, Value and Volume
Real GDP is the value of GDP that has been adjusted for inflation meaning that it shows a more
relevant trend between data.
Nominal GDP is the value of GDP in historical money terms, this could be using prices from 5 years ago
and this does not take inflation into account.
GDP is the value of the total output of an economy
GDP per capita is the value of output of the economy per person
The volume of GDP is the equivalent amount in money terms associated with a given volume of goods
or services.
The value of GDP is the total number of goods or services.
Year Index Nominal value Year Real value
2010 100 953.3 2010 953.3
2011 104.5 985.8 2011 985.8/104.5 x 100 = 943.3
2012 107.4 1022.1 2012 1022.1/107.4 x 100 = 951.7
c) Other national income measures
Gross national product (GNP) - The market value of all goods and services produced over a period
through the labour or property supplied by the citizens of a country, both domestically and overseas.
Gross national income (GNI) – This is the value of all goods and services produced by a country over a
period plus net overseas payments and dividends.
d) Comparison of rates of growth between countries and over time
Problems with comparing rates of growth over time:
-Prices tend to increase over time therefore an increase in national income over time doesn’t
necessarily mean the output of the economy has increased.
-National statistics are normally inaccurate because of errors in calculation so it is impossible to give
an exact statistic for economic growth.
-The population is always changing so it means there will never be a constant accurate figure.
2.1- Measures of economic performance
2.1.1- Economic growth
a) Rates of change of real gross domestic product (GDP)
When he GDP is increasing rapidly, the economy is growing fast because the output of the economy as
a whole must be increasing, causing a rise in income per person.
If GDP is falling, it either means that the population has increased by a large amount without a rise in
GDP, or that the economy is experiencing negative growth which is bad for the economy.
b) Real and Nominal, Value and Volume
Real GDP is the value of GDP that has been adjusted for inflation meaning that it shows a more
relevant trend between data.
Nominal GDP is the value of GDP in historical money terms, this could be using prices from 5 years ago
and this does not take inflation into account.
GDP is the value of the total output of an economy
GDP per capita is the value of output of the economy per person
The volume of GDP is the equivalent amount in money terms associated with a given volume of goods
or services.
The value of GDP is the total number of goods or services.
Year Index Nominal value Year Real value
2010 100 953.3 2010 953.3
2011 104.5 985.8 2011 985.8/104.5 x 100 = 943.3
2012 107.4 1022.1 2012 1022.1/107.4 x 100 = 951.7
c) Other national income measures
Gross national product (GNP) - The market value of all goods and services produced over a period
through the labour or property supplied by the citizens of a country, both domestically and overseas.
Gross national income (GNI) – This is the value of all goods and services produced by a country over a
period plus net overseas payments and dividends.
d) Comparison of rates of growth between countries and over time
Problems with comparing rates of growth over time:
-Prices tend to increase over time therefore an increase in national income over time doesn’t
necessarily mean the output of the economy has increased.
-National statistics are normally inaccurate because of errors in calculation so it is impossible to give
an exact statistic for economic growth.
-The population is always changing so it means there will never be a constant accurate figure.
