The use and limitations of national income data to assess changes in living standards over time
Economists use national income data to track whether people's lives are improving over time. But the raw numbers can mislead, so they adjust for inflation and consider what the figures leave out.
Formula
Real GDP per capita = Nominal GDP ÷ Population ÷ Price index × 100
Real World
UK real GDP per capita in 2023 was lower than in 2007 once adjusted for inflation, meaning the average Briton's material living standard had not recovered in 16 years — a fact hidden by looking at nominal GDP alone.
Exam Focus
Always identify at least one limitation of GDP as a living standards measure — examiners consistently reward evaluation of what GDP omits.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
How well did you know this?