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Economic Development

Measurement: What is meant by economic development and how it is measured

  • 3 things to know
  • A2 Units 3 and 4

Overview

Development against growth, GDP per head as a first measure and why it misleads, GDP, GNP and GNI compared, and purchasing power parity worked through with figures.

What you need to know

Answer each one before you reveal it.

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Key term

How does economic development differ from economic growth?

Key term

Which money measure is normally used as a first indicator of a country's development, and how is it obtained?

Numbers

A country has a real GDP of US$63 billion and a population of 18 million. Calculate its real GDP per head.

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    What is meant by economic development?

    Model answer

    Economic development is a sustained improvement in the material and social wellbeing of a population, covering rising real incomes alongside better health, education, opportunity and quality of life.

  2. 2

    How does economic development differ from economic growth?

    Model answer

    Economic growth is simply an increase in a country's real output, whereas economic development is a broader improvement in living standards and welfare that growth makes possible but does not guarantee.

  3. 3

    Which money measure is normally used as a first indicator of a country's development, and how is it obtained?

    Model answer

    Real GDP per head, obtained by dividing real GDP by the population; the real adjustment strips out inflation and the per head adjustment allows for population size.

  4. 4

    A country has a real GDP of US$63 billion and a population of 18 million. Calculate its real GDP per head.

    Model answer

    Real GDP per head is US$63 billion ÷ 18 million = US$3,500 per person.

  5. 5

    Name three reasons why official national income figures understate the true output of a less economically developed country.

    Model answer

    Subsistence production consumed by the household is never traded and so goes unrecorded, a large informal or black economy escapes the statistics, and weak statistical services collect incomplete data.

  6. 6

    Why can a substantial rise in national income leave the living standards of most of the population unchanged?

    Model answer

    National income per head is an average, so if the extra income accrues mainly to a wealthy minority the typical household sees no improvement.

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