Measures of economic Performance

• Economic Growth

  Increase in the potential output of an economy or in the real value of goods and services produced, measured by the % change in real GDP
• Gross Domestic Product (GDP)

  Measures the value of real output of the economy over a period of time; a rise in GDP indicates Economic Growth
• Nominal GDP

  The Monetary value of all goods and services produced in the economy (GDP at current Prices)
• Real GDP

  The Nominal Value of GPD adjusted for inflation
• Real GDP per Capita

  National income per person often used as a proxy for measuring the standard of living
• Purchasing Power Parity (PPP)

  Is used when assessing relative living standards between countries. Real GDP needs to be converted into the same currency for comparison, but the market exchange rate does not reflect differences in the costs of living/ purchasing power of income in the countries
• Gross National Product

  is the market value of all products produced in an annum by the labour and property supplied by the citizens of one country
• GNI

  Total value of all goods and services produced by a country's residents, plus net income from abroad (like remittances and investment income). 
• GNI could be higher than GDP if there is

  • Income from worker remittances
  • Income from interest on bonds and savings held overseas
  • Income from dividends on profits from overseas investment
  • Overseas aid transfers for poorer countries
• PPF diagram to show economic growth

  the maximum combinations of two goods or services that can be produced in a given period with available resources used at maximum efficiency

  
• Standard of Living

  – a measure of economic welfare and wellbeing. While more income typically increases the standard of living the relationship is not exact. Other factors such as access to good healthcare, access to good education, quality of housing and quality public services matter
• Subjective happiness

  Subjective happiness refers to ‘self-reported’ levels of happiness with one’s life, usually determined using questionnaires which consider emotions, rather than asking about material wellbeing.

  Factors that tend to affect happiness include - Genetics, social influences like friends, health and leisure time
• Easterlin Paradox

  life satisfaction; beyond citon does rise with average incomes but only up to a point that the marginal gain in happiness declines
• Limitations of using GDP to compare living standards

  GDP per capita is an average and does not effective take into account many other factors that influence the standard of living

  Distribution of income, value of unpaid work (Child care), Environmental degradation, Negative externalities of consumption of goods that are bad for us (tobacco) and production (pollution), Shadow Market, quality of jobs, quality of goods and services
• GDP data is also not necessarily accurate

  difficulties collecting data and making accurate calculations ; GDP measures looks backwards; GDP data often needs to be revised; some countries are likely to be have more accurate data than others.
• HDI

  calculated using three indicators: life expectancy at birth, mean years of schooling, and gross national income (GNI) per capita. Each indicator is given equal weight and is normalized on a scale from 0 to 1, with 1 being the best possible score.
• Advantages of HDI

  Provides a much broader comparison between countries than GDP does

  Education and health are important development factors to consider, and it can provide information about the country’s infrastructure and opportunities. It also shows how successful government policies have been.

  HDI does allow for comparisons between countries to be made, based upon which countries are generally more developed than other countries.
• Disadvantageous of HDI

  HDI does not consider how free people are politically, their human rights, gender equality or people’s cultural identity.

  HDI does not take the environment into account. It could be argued that this should be included to focus on human development more

  HDI does not consider the distribution of income. A country could have a high HDI but be very unequal. This can mean many people might still be in poverty.