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 Income We 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
ECONOMIC GROWTHRemember 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 Year 1 Year 2GDP = $100bn GDP = $110bn GDP = $100bn GDP = $110bn But inflation was 10% Inflation was only so there has been no 3% so there has change in real GDP been a 7% increase in real GDP
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 rate xincreasing 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 Living This 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 howstandards of living are changing.Here are two possible measures of living standards:Real GDP per capita Human Development IndexA measure of the average income per person. If (HDI)real GDP grows but the population increases at a A wider measure that includes:faster rate then average income per head will fall. •real GDP per capita (adjusted for differences in exchange rates betweenBut it takes no account of: countries)•how income is distributed (a few very rich people •educational attainment (how manycan skew the average upwards) years on average a person aged 25 will•what people can buy (the availability of goods have spent in education and how manyand services may be poor) years a young child entering school now can be expected to spend in education•the quality of and access to education, health during his or her life)care, clean water and sanitation •life expectancy•the impact of growth on the natural environment How else could we measure the quality of life in a country?
Other indicators of the quality oflife 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