Real national income as an indicator of economic performance
Real national income measures how much an economy actually produces, after stripping out the distorting effect of rising prices. Economists use it to judge whether living standards are genuinely improving.
Formula
Real GDP = (Nominal GDP / GDP Deflator) × 100
Real World
China's nominal GDP grew rapidly in the early 2000s partly because prices rose; economists used real GDP to confirm genuine output growth was also occurring, validating the improvement in living standards.
Exam Focus
When asked to 'assess' real national income as a welfare indicator, always include limitations such as inequality and non-market activity.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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