Cambridge International AS and A Level Economics: Economic development and measuring living standards (9708)

This guide covers 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, so it is not examined at AS. The syllabus states that AS content is assumed knowledge for the A Level papers, so revisit real and nominal GDP and economic growth first.

Use the Cambridge A Level Economics hub and the printable checklist to track coverage. Then use the revision notes and the practice questions, and the free diagnostics to find weak spots. All countries and figures in the examples are made up. None is real data.

What this guide covers

Outcome	What you must be able to do
11.3.1	Classify economies by level of development
11.3.2	Classify economies by level of national income
11.3.3	Use monetary indicators (real per capita GDP, GNI, NNI, PPP), explain comparison issues, and use non-monetary and composite indicators (HDI, MEW, MPI) and the Kuznets curve
11.3.4	Compare growth rates and living standards over time and between countries

11.3.1 Classification by level of development

Economic growth is a rise in real output. Economic development is wider. It is a rise in living standards and people’s capabilities: longer lives, better health and education, lower poverty and a more diverse economy. A country can grow without developing if the gains go to a small group or if health and schooling do not improve.

Classifying economies by development means grouping countries by several features, not one. Typical features are:

• income per head and how it is distributed
• life expectancy, infant mortality and nutrition
• schooling and literacy
• the structure of output and employment (primary, secondary, tertiary)
• the share of the population living in cities and the age structure

Labels differ between organisations, so use the source’s own groups. Two countries in the same group can differ sharply once you look at distribution or health.

11.3.2 Classification by national income

This classification uses one measure: national income per head, usually GNI per capita. Countries are placed in bands such as low, lower-middle, upper-middle and high income. International institutions set and revise the cut-off values, so a question will give you the bands.

Income bands are simple, transparent and comparable. They are also narrow. A country just inside a higher band is not clearly better off than one just below it, and income bands say nothing about health, schooling or inequality. This is why classification by development uses more indicators.

11.3.3 Monetary indicators

Real per capita GDP

Real GDP removes inflation. Dividing by population gives output per person, an average that allows for population change.

Worked example 1. Country A has nominal GDP of 480 cu bn in 2025 (the base year, price index 100) and 612 cu bn in 2030 (price index 118). Population is 24.0 million in 2025 and 26.4 million in 2030. Find real growth and the change in real GDP per capita.

Real GDP 2030 (2025 prices) = 612 / 1.18 = 518.64 cu bn
Real GDP growth = 518.64 / 480 - 1 = 8.05%
Per capita 2025 = 480 bn / 24.0 m = 20,000 cu
Per capita 2030 = 518.64 bn / 26.4 m = 19,646 cu
Change = 19,646 / 20,000 - 1 = -1.77%

Real output rose by 8.05%, but population rose by 10%, so output per person fell by 1.77%. Average living standards fell, even though growth was positive.

GDP, GNI and NNI

• GDP is the value of output produced inside the country’s borders.
• GNI is GDP plus net property income from abroad (income earned by residents abroad minus income paid to foreign owners of assets at home).
• NNI is GNI minus capital consumption (depreciation).

Worked example 2. Country B has GDP of 300 cu bn, net property income from abroad of minus 12 cu bn, capital consumption of 30 cu bn and a population of 6 million.

GNI = 300 + (-12) = 288 cu bn
NNI = 288 - 30 = 258 cu bn
NNI per capita = 258 bn / 6 m = 43,000 cu   (GDP per capita is 50,000 cu)

GNI suits countries with large foreign ownership of assets or large remittances, because it measures what residents receive. NNI is nearer to income that can be consumed without running down capital.

Purchasing power parity (PPP)

Converting incomes at the market exchange rate ignores that the same goods often cost less in a lower-income country. A PPP exchange rate is the rate at which a basket of goods costs the same in both currencies.

Worked example 3. The basket costs 90 cu in Country A and 600 units in Country C. The market rate is 10 units per cu. Country C’s GDP per capita is 24,000 units.

PPP rate = 600 / 90 = 6.67 units per cu
Market-rate income = 24,000 / 10 = 2,400 cu
PPP income = 24,000 / 6.67 = 3,600 cu

At market rates the basket costs 60 cu in Country C, against 90 cu in Country A. PPP income is 50% higher than the market-rate figure, so PPP gives a better picture of what people can actually buy.

Issues of comparison with monetary indicators

• The informal economy and unpaid household work are missing, and are usually larger in poorer countries.
• Subsistence output is not sold, so it is valued poorly or left out.
• Averages hide distribution. Rising per capita income can go with rising inequality.
• Output mix matters. GDP counts spending on defence or on repairing disaster damage in the same way as spending on health.
• Negative externalities, depletion of resources and leisure are ignored.
• Market exchange rates move, which changes converted incomes without any change in output.
• Price indices and data quality differ between countries, and a PPP basket may not match local consumption.

11.3.3 Non-monetary and composite indicators

Non-monetary indicators measure outcomes directly, for example life expectancy, infant mortality, adult literacy, school enrolment, doctors per thousand people, access to clean water and sanitation, electricity and internet access, and nutrition. They show what income delivers. Each covers one aspect, and they can conflict. A composite indicator combines several into one number.

Human Development Index (HDI)

The HDI combines three dimensions: health (life expectancy at birth), education (years of schooling) and standard of living (income per head). Each is turned into an index between 0 and 1 using minimum and maximum values, and the HDI is the geometric mean of the three. Income enters as a logarithm, so extra income adds less to the index at higher levels. The syllabus lists the HDI and does not require you to calculate it. The example shows how it behaves.

Worked example 4. Use invented limits: life expectancy 25 to 85, expected schooling 0 to 18, mean schooling 0 to 15, income 500 to 60,000 cu PPP. Country D has life expectancy 72, expected schooling 13.5, mean schooling 8.4 and income 9,000 cu.

Health = (72 - 25) / 60 = 0.7833
Education = (13.5/18 + 8.4/15) / 2 = (0.75 + 0.56) / 2 = 0.655
Income = ln(9,000/500) / ln(60,000/500) = 2.890 / 4.787 = 0.6037
HDI = (0.7833 x 0.655 x 0.6037)^(1/3) = 0.677

The arithmetic mean would give 0.681. The geometric mean is slightly lower because it penalises an uneven profile, so weakness in one dimension cannot be fully offset by strength in another.

Evaluation: the HDI is simple, widely available and goes beyond income. But it weights the dimensions equally and ignores inequality, the environment, freedom and security.

Measure of Economic Welfare (MEW)

MEW adjusts GDP towards welfare. It adds the value of non-market activity (household production, leisure) and subtracts regrettable necessities and the costs of negative externalities (pollution, congestion).

Worked example 5. Country E has GDP of 200 cu bn and a population of 5 million. Household production is valued at 25 bn, leisure at 18 bn, regrettable necessities at 14 bn and environmental damage at 11 bn.

MEW = 200 + 25 + 18 - 14 - 11 = 218 cu bn
MEW per capita = 218 bn / 5 m = 43,600 cu   (GDP per capita is 40,000 cu)

The weakness is valuation. Putting a money value on leisure or pollution needs judgements, so MEW is hard to compare between countries.

Multidimensional Poverty Index (MPI)

The MPI measures poverty directly as deprivation across health, education and living standards, using ten indicators (including nutrition, child mortality, years of schooling, school attendance, cooking fuel, sanitation, drinking water, electricity, housing and assets). The three dimensions have equal weight. Each indicator within health and education is worth 1/6 and each within living standards is worth 1/18. A person counts as MPI-poor if their weighted deprivation score is at least 1/3.

MPI = H x A
H = share of people who are poor (headcount ratio)
A = average share of weighted indicators in which the poor are deprived (intensity)

Worked example 6. A person is deprived in nutrition (1/6) and in cooking fuel, sanitation and electricity (1/18 each). Score = 1/6 + 3/18 = 6/18 = 1/3, so the person is poor. If 30% of a population is poor and their average deprivation is 45%, then MPI = 0.30 x 0.45 = 0.135.

The MPI shows who is deprived and how, which income cannot. It needs household survey data, so it is updated less often than GDP, and the cut-off and weights are choices.

The Kuznets curve

The Kuznets curve suggests an inverted U between income per head and inequality. At low income, most people work in low-productivity agriculture and inequality is moderate. As workers move to higher-paid urban jobs, inequality rises. At higher income, education spreads, taxes and welfare grow and inequality falls.

Inequality (Gini)
   |        ***
   |     **     **
   |   *           **
   |  *               *
   +-------------------------- Income per head

Illustration (invented): low-income band Gini 0.30, lower-middle 0.38, upper-middle 0.45, high 0.36.

Evaluation: it is a pattern seen in some data, not a law. Policy, the sectors that grow and the spread of education differ, so inequality can fall early or keep rising. An environmental version suggests pollution first rises and then falls as income grows, but the turning point is not automatic and some damage is irreversible. The curve also does not say how long the rising phase lasts.

11.3.4 Comparing growth rates and living standards

Over time

Use real figures, per capita, with the same base year. Index numbers help: set the base year to 100 and compare later values.

Worked example 7. Country X has real GDP per capita of 3,000 cu growing at 7% a year and Country Y has 30,000 cu growing at 2% a year.

After 10 years: X = 3,000 x 1.07^10 = 5,901.5 cu
                Y = 30,000 x 1.02^10 = 36,569.8 cu
Gap now = 30,668 cu (it was 27,000 cu)
Ratio Y/X: 10.0 at the start, 6.2 after 10 years
Catch-up time = ln(10) / ln(1.07/1.02) = 48.1 years

X’s growth rate is much higher, yet the absolute gap widens for decades because it starts from a low base. Rates and levels answer different questions.

Between countries

Compare using the same year, PPP-adjusted income, and several indicators together. A country with lower income per head may have higher life expectancy because of public health spending, so rankings can differ across indicators. Growth can be volatile, depends on the start and end years chosen, and does not show who benefits.

Common errors

• Calling growth and development the same thing.
• Using nominal GDP, or total rather than per capita figures, to compare living standards.
• Saying PPP reflects the exchange rate. It reflects relative price levels.
• Treating HDI as an income measure. It includes health and education.
• Describing the Kuznets curve as inevitable.
• Comparing growth rates without the starting levels.

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.