Indicators of Living Standards (Cambridge (CIE) IGCSE Economics)
Revision Note
Real GDP Per Capita
Economic development is the sustainable increase in living standards for a country, typically characterised by increases in life span, education levels, and income
There are many measures of living standards
Single indicators e.g. real gross domestic product/capita, number of doctors/1000 people; infant mortality rate; % of the population with access to clean drinking water
Composite indicators such as the Human Development Index (HDI)
The distinction between real, nominal and per capita GDP-
In economics, the use of the word nominal refers to the fact that the metric has not been adjusted for inflation
Nominal GDP is the actual value of all goods/services produced in an economy in a one-year period
There has been no adjustment to the amount based on the increase in general price levels (inflation)
Real GDP is the value of all goods/services produced in an economy in a one-year period - and adjusted for inflation
For example, if nominal GDP is $100bn and inflation is 10% then real GDP is $90bn
Real GDP per capita = rGDP / the population
It shows the mean wealth of each citizen in a country
This makes it easier to compare standards of living between countries:
For example, Switzerland has a much higher GDP/capita than Burundi
It is useful to know the rGDP/capita, however it has the following disadvantages
It is a single indicator so provides very limited information
It is an average so there may be significant poverty in many parts of a country that has a high rGDP/capita
Examiner Tip
When an exam question uses the phrase 'at constant prices' it is referring to real GDP. For example, a question may read, 'Explain what is meant by a rise in GDP at constant prices'. This requires you to define real GDP and then explain the rise.
The Human Development Index (HDI)
Developed by the United Nations, it is a combination of 3 indicators
Health, as measured by the life expectancy at birth e.g.in 2019 it was 81.2 years in the UK
Education, as measured by a combination of the mean years of schooling that 25 year olds have received, together with the expected years of schooling for a pre-school child
Income, as measured by the real GDP
Each indicator is given equal weighting in the index
The index ranks countries on a score between 0 and 1
The closer to 1, the higher the level of economic development and the better the standard of living
A value of < 0.550 is considered low development. E.g. Chad 0.394
A value of 0.550-0.699 is considered medium development. E.g. El Salvador 0.673
A value of 0.700-0.799 is considered high development. E.g. Thailand 0.777
A value ≥ 0.800 is considered very high development. E.g. Norway 0.957
An Evaluation of HDI
It is a composite indicator and includes several important indicators of living standards
It includes rGDP/capita which is an average - so the HDI still does not take into account inequality in the distribution of income
It does not measure environmental damage or resource depletion
It does not take into account cultural differences or measure qualitative factors such as happiness or equal rights
Examiner Tip
Both MCQ and structured questions often ask you to compare or analyse the HDI and GDP/capita of a country. On the whole, there is usually a positive relationship. Countries with a higher HDI value usually have a higher GDP/Capita. However, look for exceptions in the data presented - is the GDP/capita rising while the HDI is falling? If so, one reason may be that the inequality in the country is worsening (rich getting richer and the poor, relatively poorer).
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