Cambridge A Level Economics: Economic growth: measurement, causes and consequences (9708) – Revision Notes

These notes condense section 4.4 (Economic growth), outcomes 4.4.1 to 4.4.5, of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Topic 4 is AS Level content, and AS content is assumed knowledge for A Level Papers 3 and 4. For full explanations read the study guide. Test yourself with the practice questions.

Track progress on the printable checklist and use the course hub to find other topics. More macroeconomic questions are in the macroeconomy practice set. The free 10-minute diagnostics show where to start. All countries and figures below are invented.

Definitions to know (4.4.1 to 4.4.3)

Term	Meaning
Economic growth	An increase in the real output of goods and services over time, measured by the percentage change in real GDP
Real GDP	GDP adjusted for price changes, so it shows output at constant prices
Nominal GDP	GDP at current prices, so it rises with output and with prices
Price index	A measure of the price level against a base year set at 100
GDP per capita	GDP divided by the population
Negative growth	Real GDP falls from one period to the next

Formulas

Quantity	Formula
Growth rate (%)	(new − old) / old × 100
Real GDP	nominal GDP / price index × 100
GDP per capita	GDP / population
New level after growth of g%	old level × (1 + g/100)
Growth over several years	multiply (1 + g/100) for each year, subtract 1, then multiply by 100
Index number	value / base value × 100

Method in steps: nominal to real growth

1. Deflate each nominal figure: nominal / index × 100.
2. Take the real figures for the two years.
3. Growth = (real new − real old) / real old × 100.
4. Quote the unit (%) and the number of decimal places asked for.

Worked reminder 1. Country H has a base year (Year 1) price index of 100 and nominal GDP of 3,000 cu bn. In Year 2 the price index is 106 and nominal GDP is 3,339 cu bn.

• Real GDP Year 2 = 3,339 / 106 × 100 = 3,150 cu bn
• Real growth = (3,150 − 3,000) / 3,000 × 100 = 5.0%
• Nominal growth = (3,339 − 3,000) / 3,000 × 100 = 11.3%

Worked reminder 2. Country G has real GDP of 2,150 cu bn in Year 1 and 2,225.25 cu bn in Year 2. Growth = 75.25 / 2,150 × 100 = 3.5%.

Worked reminder 3 (per capita). Country I has real GDP of 900 cu bn and 30.0 million people in Year 1, and 936 cu bn and 30.6 million in Year 2.

• GDP growth = 36 / 900 × 100 = 4.0%. Population growth = 0.6 / 30.0 × 100 = 2.0%.
• Per capita: 900 / 30.0 = 30.00 and 936 / 30.6 = 30.59 (2 d.p.), which is growth of 1.96%.
• The rule of thumb 4.0 − 2.0 = 2.0 is only close.

Worked reminder 4 (several years). Country J has growth of +3%, −1% and +2%.

• Index: 100, 103.00, 101.97, 104.01 (2 d.p.).
• Total growth over three years = 1.03 × 0.99 × 1.02 − 1 = 0.0401, or 4.0% (1 d.p.). The simple sum, 4%, is close here only because the rates are small. Compounding is the correct method.

Worked reminder 5 (recovering the price index). If nominal GDP is 480 and real GDP is 400, the price index is 480 / 400 × 100 = 120. If nominal GDP is 660 and the index is 120, real GDP is 660 / 120 × 100 = 550.

Worked reminder 6 (index to growth). An index that moves from 125 to 131.25 shows growth of 6.25 / 125 × 100 = 5.0%.

Must-know distinctions

Pair	Key difference
Nominal v real	Nominal includes price rises. Real removes them
Level v growth	The level is how much is produced. Growth is the rate of change
Total v per capita	Per capita divides by population and shows output per person
Percentage v absolute change	A small economy can grow faster in % but add less in absolute terms
Growth in AD v growth in AS	AD raises output only while there is spare capacity. AS raises capacity
Quantity v quality of resources	Quantity raises total output. Quality raises output per worker

Causes of growth (4.4.4)

Short-run, from AD:

• Higher C, I, G or net exports shift AD to the right.
• With spare capacity, real output and employment rise with little price change.
• Near full capacity, more of the rise goes into prices.

Long-run, from AS (LRAS shifts right, PPC shifts outward):

1. More labour: population, migration, participation.
2. Better labour: education, training, health.
3. More capital: investment in machinery and infrastructure.
4. Better technology: new methods and products.
5. More land and natural resources.
6. Better institutions and incentives.

Chain to use: cause, then change in capacity or demand, then change in output, then living standards. Always say whether the cause raises total output or output per worker.

Consequences of growth (4.4.5)

Benefits	Costs
Higher real incomes and living standards	Inflation if demand outruns capacity
More jobs	Structural job loss from new technology
More tax revenue for health, education	A larger trade deficit if incomes pull in imports
Lower poverty if shared	Environmental damage and resource depletion
More choice and output	Unequal gains and wider inequality

Evaluation prompts: the source of growth, per capita or total, who gains, the time horizon, how large the starting income is, and whether GDP captures what you are arguing about.

Worked reminder 7: comparing two economies

Country K has real GDP of 250 cu bn and 5.0 million people, then 262.5 cu bn and 5.1 million people a year later.

• GDP growth = 12.5 / 250 × 100 = 5.0%.
• Population growth = 0.1 / 5.0 × 100 = 2.0%.
• Per capita: 250 / 5.0 = 50.0 and 262.5 / 5.1 = 51.47, which is growth of 2.94%.

Now compare it with a second economy whose real GDP is 1,000 cu bn and grows 2%. That economy adds 20 cu bn, against 12.5 cu bn for Country K. Country K grows faster, but the larger economy adds more output. State both, because a question may ask about either.

Evaluation chain for a growth answer

Step	What to write
Claim	Growth raises real output
Mechanism	AD shifts right, or LRAS shifts right, depending on the cause
Effect	Output, jobs, incomes, tax revenue, prices, imports
Limit	Distribution, environment, population, time
Judgement	Which effect is larger for this country and why

Measurement problems

• Informal and unpaid output is missed.
• Price indices may miss quality changes.
• Estimates are revised.
• Population counts may be imprecise.
• GDP ignores distribution and environmental cost.

Quick self-test

1. State the formula for the growth rate.
2. Real GDP rises from 250 to 262.5. Calculate the growth rate.
3. Nominal GDP is 1,260 and the price index is 120. Calculate real GDP.
4. Real GDP grows 5% and population 2%. Calculate per capita growth to 1 d.p.
5. Growth is 2%, then 2%. Calculate total growth over the two years.
6. Nominal GDP rises 6% and prices rise 8%. Is real GDP higher or lower, and by roughly how much?
7. Give two causes of long-run growth.
8. Give one reason why growth may not raise living standards.
9. Why can demand-led growth cause inflation?
10. Why is nominal GDP a poor measure of growth?

Answers

1. (new real GDP − old real GDP) / old real GDP × 100.
2. (262.5 − 250) / 250 × 100 = 5.0%.
3. 1,260 / 120 × 100 = 1,050.
4. 1.05 / 1.02 − 1 = 0.02941, which is 2.9%.
5. 1.02 × 1.02 − 1 = 0.0404, or 4.04% (not 4%).
6. 1.06 / 1.08 − 1 = −0.0185, so real GDP is lower by about 1.9%.
7. Any two of: more or better labour, more capital, better technology, more land or resources, better institutions.
8. Gains may go to a small group, or environmental damage may offset the gain in output. Any well-explained reason.
9. With the economy close to full capacity, a rightward AD shift meets firms that cannot easily expand output, so the extra demand bids prices up.
10. It rises when prices rise even if output does not.

Where marks are usually lost

• Using nominal figures in a growth calculation when real figures are required.
• Computing growth against the new year instead of the old year.
• Adding yearly growth rates instead of compounding them.
• Quoting per capita growth as the difference between GDP and population growth without saying it is approximate.
• Listing causes of growth without saying whether AD, AS or both change.
• Describing consequences with no judgement on who gains and over what time.
• Forgetting the unit or percentage sign.
• Treating GDP as a full measure of living standards without comment.

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). Sections 4.4.1 to 4.4.5.