OxfordAQA International AS and A-level Economics: Measuring growth and development (9640) – Revision Notes

Condensed recall notes for OxfordAQA International AS and A-level Economics (9640), specification version 1.2, section 3.4.3.1: measuring economic growth, development and living standards. Section 3.4 is extra International A2 content, examined in Unit 4. The study guide has the full explanations and longer worked examples. Test yourself with the practice questions. Track coverage with the OxfordAQA Economics hub and the printable checklist, and use the free diagnostics to find gaps. Every figure is invented for illustration. The calculation skills in section 3.5 may turn up in any unit.

Definitions

Term	Meaning
Economic growth	Rise in real national income (real output) over time
Actual growth	Rise in real output from the economy’s current position
Potential growth	Rise in productive capacity
Economic development	Lasting improvement in well-being: health, education, income, fairness
Sustainable development	Improves well-being of current and future generations
GDP	Value of production within a country’s borders, whoever owns the firms
GNI	GDP plus income received from abroad minus income paid abroad
NNI	GNI minus capital depreciation
Real value	Nominal value adjusted for price changes
PPP exchange rate	Rate that equalises the cost of the same basket in two countries
Infant mortality rate	Deaths under one year per 1,000 live births
Literacy rate	Share of adults who can read and write
Gini coefficient	0 (equality) to 1 (one person holds all income)
Quintile ratio	Top fifth’s income share divided by bottom fifth’s

Formulas

Measure	Formula
GNI	GDP + income from abroad − income paid abroad
NNI	GNI − depreciation
Real value	Nominal value ÷ price index × 100
Real growth	(1 + nominal growth rate) ÷ (1 + inflation rate) − 1
Real GDP per head growth	(1 + real GDP growth) ÷ (1 + population growth) − 1
PPP rate	Basket cost in home currency ÷ basket cost in foreign currency
Dimension index	(actual − minimum) ÷ (maximum − minimum)
HDI	Geometric mean of health, education and income indices
Inequality loss in HDI	(HDI − IHDI) ÷ HDI
MPI	H × A (headcount ratio times average intensity)

Method in steps

Converting to real terms

1. Write the price index with the base year as 100.
2. Take the nominal figure, divide by the index and multiply by 100.
3. Compare the real figures, or divide by population to get a per head value.

Reminder. Nominal GDP per head of 18,900 with a price index of 105 gives real GDP per head of 18,900 ÷ 1.05 = 18,000.

Comparing countries with PPP

1. Find the PPP rate from the basket costs.
2. Divide the first country’s income per head by the PPP rate.
3. Compare in the second country’s currency and say how the gap differs from the market-rate comparison.

Reading a Lorenz curve

1. The further the curve bows from the line of equality, the greater the inequality.
2. Gini is the bowed area as a fraction of the whole triangle under the line.
3. Compare two curves only if they do not cross; if they cross, use a quintile ratio as well.

The three kinds of economy

• MEDCs: high income per head, services-led, high life expectancy, low infant mortality, slow population growth.
• Emerging economies: middle income and growing fast, industrial output and exports rising, urbanising, attracting FDI, inequality often widening.
• LEDCs: low income per head, reliance on agriculture or a few primary exports, high infant mortality, lower literacy, rapid population growth, large informal sector.

These are tendencies. Countries sit on a spectrum, and some MEDC-style indicators can appear in poorer countries (for example a high literacy rate).

Composite indicators

Indicator	Dimensions	What it adds	Main weakness
HDI	Health, education, income at PPP	Goes beyond income	Ignores inequality, environment and freedom
IHDI	Same, discounted for inequality	Shows loss from unequal sharing	Needs detailed survey data
MPI	Ten indicators of deprivation across health, education, living standards	Shows overlapping deprivation, extent and depth	Depends on weighting choices; data are survey-based

HDI uses the geometric mean so weakness in one dimension cannot be hidden by strength in another. Income enters as a logarithm because extra income adds less well-being at higher levels.

Must-know distinctions

• Growth versus development. Growth is one number (output). Development is many (health, education, fairness).
• GDP versus GNI versus NNI. Location of production, then ownership of income, then allowing for wear on capital.
• Real versus nominal. Only real figures show changes in output.
• Market rate versus PPP. Market rates are driven by trade and capital flows; PPP reflects local purchasing power.
• Mean versus median. The mean is pulled up by a few very high incomes, so the median can show the typical household better.
• HDI versus IHDI versus MPI. Average achievement, achievement after inequality, and deprivation.
• Percentage versus absolute gain. A fast percentage rise from a low base can be a small absolute rise.

Evaluating real GDP per head

Strengths: widely available, regularly updated, consistent, linked to good outcomes. Weaknesses: averages hide distribution; informal and unpaid work missed; composition ignored; pollution and resource depletion not subtracted; leisure, freedom and safety excluded; exchange rate problems in international comparison.

Chain of reasoning. Higher real GDP per head means more output per person. This allows more consumption, public spending and investment, which can raise health and education. However, if gains go to a few, if growth uses up natural capital, or if hours worked rise sharply, well-being may not rise. Judgement: it is a good starting indicator but should be read alongside others such as HDI, IHDI and a distribution measure, and its reliability depends on how evenly and sustainably the gains arise.

Limits to growth

• Environmental: finite resources, pollution, climate change, habitat loss. Growth that depletes natural capital is not sustainable.
• Social: congestion, rising inequality, weakened communities, stress. Output can rise while well-being falls.
• Evaluation: cleaner technology and fair sharing can loosen the limits; the right balance depends on the country’s stage and the time horizon.

Quick self-test

1. GDP is 300, income from abroad is 12 and income paid abroad is 20. Calculate GNI. If depreciation is 25, calculate NNI.
2. Nominal GDP goes from 260 to 286 and the general price level rises by 4%. Work out real growth to one decimal place.
3. Real GDP rises 3.0% and population 1.2%. Calculate the growth in real GDP per head to one decimal place.
4. Nominal GDP per head is 22,500 and the price index is 125. Calculate real GDP per head.
5. A basket costs 330 in Country X’s currency and 55 in Country Y’s. State the PPP rate.
6. The three HDI dimension indices are 0.9, 0.4 and 0.6. Calculate the geometric mean and compare it with the arithmetic mean.
7. HDI is 0.800 and IHDI is 0.656. Calculate the percentage loss due to inequality.
8. In a country 15% of people are MPI-poor, deprived in 40% of weighted indicators on average. Calculate MPI.
9. There are 90 infant deaths among 6,000 live births. Calculate the infant mortality rate.
10. The top fifth receives 40% of income and the bottom fifth 8%. Calculate the quintile ratio.
11. State two reasons why real GDP per head may overstate living standards.
12. Explain one way a country can achieve growth without development.

Answers

1. GNI = 300 + 12 − 20 = 292. NNI = 292 − 25 = 267.
2. Nominal growth = 10.0%. Real growth = 1.10 ÷ 1.04 − 1 = 5.8%.
3. 1.030 ÷ 1.012 − 1 = 1.8%.
4. 22,500 ÷ 1.25 = 18,000.
5. 330 ÷ 55 = 6 units of X’s currency per unit of Y’s.
6. Geometric mean = (0.9 × 0.4 × 0.6)^(1/3) = 0.216^(1/3) = 0.600. Arithmetic mean = 0.633. The geometric mean is lower because the weak dimension (0.4) pulls it down more.
7. (0.800 − 0.656) ÷ 0.800 = 18.0%.
8. 0.15 × 0.40 = 0.060.
9. 90 ÷ 6,000 × 1,000 = 15.
10. 40 ÷ 8 = 5.
11. Any two of: averages hide inequality; pollution and depletion are not deducted; output of harmful or repair activity is counted; long working hours are not penalised.
12. Output grows from a mineral export, but profits go abroad or to a small group, so health, education and poverty do not improve.

Where marks are usually lost

• Quoting nominal growth when the question asks for real growth.
• Subtracting population growth from GDP growth by simple subtraction when a precise ratio is requested, or ignoring population altogether.
• Leaving out units, years or “per 1,000” in answers.
• Describing HDI without saying which three dimensions it combines.
• Confusing IHDI and MPI: one adjusts an average, the other counts deprivation.
• Giving a list of limitations with no explanation of why each matters or who is affected.
• Stating that PPP gives “true” living standards instead of “a fairer comparison of purchasing power”.
• Treating the Gini as a percentage without saying whether the scale is 0 to 1 or 0 to 100.
• Concluding without a judgement that depends on distribution, sustainability or the time frame.

Official syllabus

OxfordAQA International AS and A-level Economics (9640) specification, version 1.2, section 3.4.3.1, published by OxfordAQA (first teaching September 2020, first A-level exams May/June 2022).