Measures of Economic Performance — A-Level Economics Revision

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What is Measures of Economic Performance?

This area of macroeconomics focuses on how we measure the health of an economy. Key indicators include Gross Domestic Product (GDP) to measure total output, the inflation rate (using the Consumer Price Index or CPI) to track price changes, and the unemployment rate to measure joblessness. Understanding these metrics is crucial for assessing economic growth, stability, and living standards, and for making comparisons over time and between countries.

Board notes: This is a foundational macroeconomics topic for AQA, Edexcel, and OCR. All boards expect a clear understanding of GDP, inflation, and unemployment. Edexcel and AQA place particular emphasis on the limitations of GDP as a measure of living standards and the use of index numbers for calculations. OCR often requires students to evaluate the usefulness of different data sets.

Worked example

Common mistakes

• 1Confusing nominal GDP with real GDP. Nominal GDP is measured at current market prices and can increase simply due to inflation, whereas real GDP is adjusted for inflation, providing a more accurate measure of the actual increase in the output of goods and services.
• 2Thinking that GDP is a perfect measure of living standards. GDP doesn't account for the distribution of income, the value of unpaid work (e.g., volunteering), environmental quality, or the negative externalities of production like pollution. Alternative measures like the Human Development Index (HDI) provide a broader view.
• 3Mixing up the CPI and RPI measures of inflation. The Consumer Price Index (CPI) is the official measure used for the UK government's inflation target and excludes most housing costs. The Retail Price Index (RPI) includes mortgage interest payments and is often higher, but is no longer a national statistic.

Measures of Economic Performance exam questions

Exam-style questions for Measures of Economic Performance with mark-scheme style solutions and timing practice. Aligned to AQA, Edexcel and OCR specifications.

Frequently asked questions

• What is the difference between being unemployed and being economically inactive?

  An individual is considered unemployed if they are out of work but are actively seeking and are available to start a job. Someone who is economically inactive is not in work and is not seeking work, for reasons such as being a student, retired, or a full-time carer.

• Why is a high inflation rate a problem for the economy?

  High inflation erodes the purchasing power of money, meaning your savings buy less over time. It can also create uncertainty for businesses, discourage investment, and lead to a loss of international competitiveness if it's higher than in other countries.