1. National Income
The value of the output of goods and services produced in an economy over a period of time
Increases in National Income mean that the economy has grown – economic growth!
It is assumed that a wealthier nation can have a more comfortable life, more leisure time, more choices, etc…

2. GDP – a measure of National Income
In the UK, we use GDP to measure National Income (some countries use another measure)
GDP = Gross Domestic Product (includes production of foreign countries on UK soil; doesn’t include UK companies abroad)

4. Put the top 10 in order of Size
Country
Size ($billion, 2013)
United States
16,800
China
9,240
Japan
4,902
Germany
3,635
France
2,735
United Kingdom
2,522
Brazil
2,246
Russian Federation
2,097
Italy
2,071
India
1,877
Australia
Brazil
China
Canada
France
Germany
India
Indonesia
Italy
Japan
Netherlands
Poland
Russia
Saudi Arabia
South Korea
Spain
Sweden
Switzerland
Thailand
Turkey
United Kingdom
United States

5. Consider this… 2013 UK GDP – £1. 7B 2014 UK GDP – £1
Consider this… 2013 UK GDP – £1.7B 2014 UK GDP – £1.75B What is the growth rate in the year? Hmmm…. What if all the prices of all the goods in the economy went up during the year… would that change your answer?

6. Real vs. Nominal GDP Growth (value versus volume)
Nominal GDP growth: Percentage increase in the total output of the economy calculated using the raw figures (the prices used are those that existed on the day of the measurement)
Real GDP growth: Percentage increase in the total output of the economy, adjusted for inflation (removing the effect of price changes during the period)
5% nominal GDP growth – 2% inflation = 3% real GDP growth

7. Total vs. Per Capita GDP
Per capita is ‘per person’ – total GDP of the country divided by the population

8. Three ways to calculate National Income
Remember the desert island?
Remember circular flow?
income = expenditure = output
We can measure any of these to calculate GDP

9. Can you calculate the total contribution to GDP here?
£1600
We have to be careful not to double count – we add ‘value added’ at each stage of production.
£95
£550

10. The UK economy has become increasingly based on producing services…

11. But there are some problems with using GDP as a measure of performance:
Some activity goes uncounted - things we do for ourselves or our friends without payment - activities intentionally hidden from gov’t (black market)
Doesn’t tell us the wealth of the average citizen - most of GDP could be in the hands of a few very rich people - Even GDP per capital doesn’t reveal this difference
Difficult to compare countries - the basket of goods that your money will buy in each country may be very different, so different standards of living could exist for the same GDP figure

12. Comparing growth rates:
China’s growth rate at 7% is considered poor and worrying…

13. Comparing growth rates: This annualised rate of 1
Comparing growth rates: This annualised rate of 1.6% growth is considered really positive for the UK!

14. Comparing growth rates:
Different countries have different ‘potential’ to grow
Under developed countries have more possibilities for progress and they can progress fast by adopting technology already developed
Highly developed countries have to work harder to squeeze out more output with their already very productive and sophisticated production and workforce

15. Is GDP all that? Happiness? Well-being? Easterlin paradox?
Relative versus absolute income?