Cambridge A Level Economics: Economic development and measuring living standards (9708) – Revision Notes

These notes condense section 11.3 (Economic development), outcomes 11.3.1 to 11.3.4, of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Topic 11 is A Level content only. For full explanations and longer worked examples, read the study guide, then test yourself with the practice questions. The course hub, the printable checklist and the free diagnostics show what to revise next. All figures are invented.

Definitions

Term	Meaning
Economic growth	A rise in real output over time
Economic development	A rise in living standards and capabilities: health, education, lower poverty, a changing economic structure
Real per capita GDP	Real GDP divided by population
GNI	GDP plus net property income from abroad
NNI	GNI minus capital consumption (depreciation)
PPP	Exchange rate at which a basket of goods costs the same in two currencies
HDI	Composite index of health, education and income
MEW	GDP adjusted for non-market output, leisure, regrettable necessities and externalities
MPI	Poverty measured as overlapping deprivations; MPI = H x A
Kuznets curve	Inverted U between income per head and inequality

11.3.1 and 11.3.2 Classification

Basis	Uses	Strength	Weakness
Level of development	Income, health, education, economic structure, urbanisation, age structure	Wide, shows quality of life	Labels differ by source; judgement involved
National income	Usually GNI per capita bands (low, lower-middle, upper-middle, high)	Simple, easy to compare	Ignores health, education, inequality; cut-offs are arbitrary and revised

Link the two: income bands are often used as a shorthand for development, but two countries in one band can differ in life expectancy and schooling.

11.3.3 Monetary indicators

Method in steps for real per capita GDP:

1. Deflate nominal GDP by the price index (divide by index/100).
2. Divide by population.
3. Compare with the base year, and state the percentage change.

Reminder: nominal GDP 300 cu bn, price index 125 (base 100), population 5 million. Real GDP = 300/1.25 = 240 cu bn. Per capita = 240 bn/5 m = 48,000 cu.

GNI = GDP + net property income from abroad
NNI = GNI - capital consumption
PPP rate = price of basket in country B's currency / price of basket in country A's currency
Income at PPP = income in local currency / PPP rate

PPP reminder: basket costs 90 cu in Country A and 600 units in Country C. PPP rate = 600/90 = 6.67 units per cu. Income of 24,000 units is 24,000/6.67 = 3,600 cu at PPP, against 2,400 cu at a market rate of 10 units per cu. Prices are lower in Country C, so PPP income is higher.

Issues with monetary indicators

• Average, not distribution
• Informal and subsistence output missing
• Unpaid work and leisure ignored
• Externalities, depletion and resource damage ignored
• Composition of output not shown (defence, repairs after disaster)
• Exchange-rate swings alter converted incomes
• Price indices and data quality differ between countries

Non-monetary and composite indicators

Non-monetary: life expectancy, infant mortality, literacy, school enrolment, doctors per thousand, access to clean water, sanitation, electricity, internet, nutrition.

Index	Dimensions	How it is built	Main criticism
HDI	Health, education, standard of living	Each dimension indexed 0 to 1, then geometric mean; income in logarithms	Equal weights; ignores inequality and environment
MEW	Welfare adjustments to GDP	GDP + non-market output + leisure - regrettable necessities - externality costs	Valuation is subjective
MPI	Health, education, living standards (ten indicators)	Poor if weighted deprivation is at least 1/3; MPI = H x A	Needs survey data; cut-off and weights are choices

HDI steps: dimension index = (actual - minimum)/(maximum - minimum), using the limits given. For income use ln(actual) - ln(min) over ln(max) - ln(min). Education index is the average of the schooling indices. HDI = (health x education x income)^(1/3). The syllabus lists HDI but gives no calculation requirement.

HDI reminder: health 0.7833, education 0.655, income 0.6037 gives HDI = 0.677 (geometric) against 0.681 (arithmetic). The geometric mean penalises unevenness.

MEW reminder: GDP 200 bn + household production 25 + leisure 18 - regrettable necessities 14 - environmental damage 11 = 218 bn.

MPI reminder: weights are 1/6 for each of the four health and education indicators and 1/18 for each of the six living-standards indicators. H = 30%, A = 45% gives MPI = 0.135.

Kuznets curve

Inequality
   |      ***
   |   **     **
   |  *          **
   | *              *
   +------------------- Income per head

Reasoning chain: low income and agriculture, so inequality moderate. Industrialisation means a gap between urban and rural pay and between those with and without skills, so inequality rises. Education spreads, taxes and welfare expand and the labour market tightens, so inequality falls.

Evaluate: not a law; policy can bend the curve; some data fit and some do not; the environmental version has an unclear turning point and some damage is irreversible.

11.3.4 Comparing growth and living standards

Comparison	Use	Watch for
Over time	Real, per capita, same base year; index numbers (base = 100)	Start and end year choice, population change, new products, inflation measurement
Between countries	Same year, PPP income, several indicators	Different data quality, exchange rates, informal sector, distribution

Compound growth: value after n years = start x (1 + g)^n.

Reminder: 3,000 cu at 7% and 30,000 cu at 2%. After 10 years: 5,901.5 cu and 36,569.8 cu. The gap widens from 27,000 cu to 30,668 cu even though the ratio narrows from 10.0 to 6.2. Catching up takes ln(10)/ln(1.07/1.02) = 48.1 years.

Evaluating an indicator

Ask four questions: what does it include, what does it leave out, who does it average over, and is the data comparable between countries or years? Then judge which indicator suits the purpose. To compare incomes in shops, PPP income per capita fits. To judge poverty, the MPI fits better than average income. To judge broad progress, the HDI fits, and several indicators together are more reliable than any one.

Index number reminder: real GDP per capita of 2,000 cu in the base year and 2,500 cu five years later gives an index of 2,500/2,000 x 100 = 125, a rise of 25% over the period.

Must-know distinctions

• Growth is about output. Development is about people’s lives.
• GDP is produced at home. GNI is received by residents. NNI allows for depreciation.
• Market exchange rate conversion compares currencies. PPP conversion compares purchasing power.
• A high growth rate and a high level of income are different things.
• Headcount (H) says how many are poor. Intensity (A) says how deprived they are.

Quick self-test

1. Distinguish GDP from GNI.
2. Nominal GDP is 210 cu bn, the price index is 120 (base 100) and the population is 3 million. Find real GDP per capita.
3. Country P has GDP 80 cu bn, net property income from abroad of 5 cu bn and capital consumption of 7 cu bn. Find NNI.
4. A basket costs 50 cu in one country and 400 units in another. Find the PPP rate.
5. Name three dimensions of the HDI.
6. Why does the HDI use a geometric mean?
7. A person is deprived in three living-standards indicators. Is the person MPI-poor?
8. Headcount ratio is 20% and intensity is 40%. Find the MPI.
9. Give one reason MEW is hard to compare between countries.
10. What does the Kuznets curve say about inequality as income rises?
11. Real GDP per capita rises 4% a year from 2,000 cu. What is it after 5 years?
12. Real GDP rises 3% while population rises 5%. What happens to real GDP per capita?

Answers

1. GDP is output produced within borders. GNI is GDP plus net property income from abroad.
2. Real GDP = 210/1.2 = 175 cu bn. Per capita = 175 bn/3 m = 58,333 cu.
3. GNI = 80 + 5 = 85. NNI = 85 - 7 = 78 cu bn.
4. 400/50 = 8 units per cu.
5. Health, education, standard of living.
6. It penalises uneven performance, so a low score in one dimension is not fully offset by a high score in another.
7. Three living-standards indicators score 3 x 1/18 = 1/6, below 1/3, so not poor on that evidence alone.
8. 0.20 x 0.40 = 0.08.
9. Valuing leisure, household work and pollution needs subjective judgements that differ between studies.
10. Inequality first rises and then falls, giving an inverted U.
11. 2,000 x 1.04^5 = 2,433 cu.
12. It falls by about 1.9%: 1.03/1.05 = 0.981.

Where marks are usually lost

• Treating growth and development as the same, with no mention of health, education or structure.
• Dividing by the price index without converting it to a ratio (118 means divide by 1.18).
• Quoting total, not per capita, figures in a living-standards comparison.
• Using the PPP rate the wrong way round and getting a lower income for a cheaper country.
• Listing the problems of GDP but never saying which direction they bias the comparison.
• Describing the HDI or MPI without naming dimensions.
• Presenting the Kuznets curve as a certainty, with no evaluation.
• Concluding that faster growth means the poorer country has caught up, ignoring the starting gap.

Official syllabus

Cambridge International AS & A Level Economics 9708, syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment (Cambridge International Education), section 11.3.