Indicators of Living Standards (Cambridge (CIE) IGCSE Economics): Revision Note

Real GDP per head (capita)

• Economic development is the sustainable increase in living standards for a country, typically characterised by increases in life span, education levels, and income

• There are many measures of living standards

  • Single indicators, e.g., real gross domestic product per capita, number of doctors/1000 people; infant mortality rate, and % of the population with access to clean drinking water

  • Composite indicators such as the Human Development Index (HDI) 

The distinction between real, nominal and per head GDP

Nominal GDP

• In economics, the use of the word 'nominal' refers to the fact that the metric has not been adjusted for inflation

• Nominal GDP is the actual value of all goods and services produced in an economy in a one-year period

  • There has been no adjustment to the amount based on the increase in general price levels (inflation)

Real GDP

• Real GDP is the value of all goods and services produced in an economy in a one-year period - and adjusted for inflation

  • For example, if nominal GDP is $100bn and inflation is 10% then real GDP is $90bn

Real GDP per head (capita)

• This metric take the real GDP and divides it by the number of people in the population

• It shows the mean wealth of each citizen in a country

• This makes it easier to compare standards of living between countries

  • For example, Switzerland has a much higher GDP per capita than Burundi

The advantages and disadvantages of real GDP per capita

The human development index (HDI)

• The Human Development Index (HDI) is a measure used to compare the development levels of different countries, not just based on income, but also on health and education

• Developed by the United Nations, the Human Development Index is a combination of 3 indicators

  1. Health – measured by life expectancy at birth

  2. Education – measured by average years of schooling and expected years of schooling

  3. Income, as measured by the real gross national income per capita at purchasing power parity (PPP)

• Each indicator is given equal weighting in the index

• The index ranks countries on a score between 0 and 1

  • A score closer to 1 means a higher level of human development

  • A score closer to 0 means a lower level of human development

Examples of HDI values

Source: UNDP Data Centre (opens in a new tab) 

• A value of less than 0.550 is considered low development, e.g. Senegal was at 0.514 in 2021

• A value of 0.550-0.699 is considered medium development, e.g., Bangladesh was at 0.667 in 2021

• A value of 0.700-0.799 is considered high development; e.g., Thailand was at 0.777 in 2021

• A value ≥ 0.800 is considered very high development, e.g. Austria was at 0.918 in 2021

The advantages and disadvantages of using the HDI

• One of the main advantages is that the HDI is a composite indicator which provides a more useful comparison metric than single indicators do