IGCSE ECONOMICS Section C 1/9/14

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

Measuring National IncomeWe 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

Here is a start…..

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

GDP = $100bn GDP = $110bn

But inflation was 10% so

there has been no change in real GDP

Year 1 Year 2

GDP = $100bn GDP = $110bn

Inflation was only 3% so

there has been a 7% increase in real GDP

ECONOMIC GROWTH

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 ratexincreasing 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?

The standard of LivingThis 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)

Measuring economic welfareSimply 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

A measure of the average income per person. If real GDP grows but the population increases at a faster rate then average income per head will fall.

But it takes no account of:

•how income is distributed (a few very rich people can skew the average upwards)

•Self provided goods and non -declared income

•what people can buy (the availability of goods and services may be poor)

•the quality of and access to education, health care, clean water and sanitation

•the impact of growth on the natural environment

Human Development Index (HDI)

A wider measure that includes:

•real GDP per capita (adjusted for differences in exchange rates between countries)

•educational attainment (how many years on average a person aged 25 will have spent in education and how many years a young child entering school now can be expected to spend in education during his or her life)

•life expectancy

How else could we measure the quality of life in a country?

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