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Economic growth 

GDP (Gross Domestic Product) is the total value of goods and services produced in one year in an economy. It is also equivalent to the total income in the country at the time, so can be calculated by adding up the population's incomes for that year. 
This means it is a good indicator of economic growth. 

GDP per capita is the value of GDP divided by the population which gives us the average income. 

We can use the rate of change of GDP over time ( [(Current GDP - Old GDP) / Old GDP] x 100 = % change) to observe how much an economy has grown between any two periods. 
Real GDP is GDP adjusted for inflation whereas nominal GDP is GDP that is left unadjusted. 

Value - the monetary value of all goods and services produced in one year (so price x quantity) 

Volume - the number of goods produced in the country in a given year. 


An alternative measure of national income is Gross National Income (GNI). GNI differs from GDP in that it includes income paid into the country from abroad (i.e money from interest/dividends). 

It is important to consider the Purchasing Power Parity (PPP) that one's income has. The PPP is the amount that can be purchased with an amount of money. This varies in different countries. Using the PPP rate for currency conversions, the amount you would be able to purchase with one currency would be the same with the other currency. Using PPP exchange rates minimises any misleading international comparisons. One country's GDP may be higher than another's, but in that country the same amount of money might only buy you one chocolate bar whereas in the other it could buy you three for example. 

GDP as a measure of living standards:


GDP can be used to measure living standards, often making it possible to compare countries or living standards over time. It is a good measure as: 

- It is in monetary terms so indicates exactly the standard of living even if we have only one figure. 
- As long as real GDP per capita is used, we can use it to compare data over time without any distortion due to inflation. 
- Money is a clear and easily comparable measure used for cross-country comparison, especially if PPP is taken into account. 

There are some limitations to this however: 

- GDP doesn't take into account distribution of income - masking any inequalities. 
- It doesn't take into account some income at all (e.g income from the black market) because it isn't declared/tax evasion. 
- Doesn't take into account any unpaid work such as babysitting, volunteering and domestic cleaning. 
- There may be factors that lower living standards without changing the GDP, or in fact even increasing it (e.g natural disasters, war, correcting pollution, etc) 


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