Edexcel A-Level Economics A (9EC0) · Theme 2
Specification points
- Economic growth: real and nominal GDP, GDP per capita, GNI, PPP.
- Inflation, deflation and disinflation; measurement using CPI and RPI.
- Employment and unemployment; measures and significance.
- The balance of payments on the current account.
Economic growth
GDP is the total value of output in an economy. Real GDP is adjusted for inflation; nominal is not. GDP per capita divides by population to gauge living standards. GNI adds net income from abroad, and purchasing power parity (PPP) adjusts for price differences between countries, aiding comparison.
National income statistics also help compare living standards, but they omit inequality, the informal economy, environmental costs and non-market activity.
Inflation
Inflation is a sustained rise in the general price level; deflation a fall; disinflation a fall in the *rate*. It is measured by the CPI (a weighted basket of consumer goods) and the RPI (which includes housing costs). Causes are demand-pull and cost-push. Effects include falling real incomes, reduced competitiveness and menu/uncertainty costs.
Key definitions
| Term | Definition |
|---|---|
| Real GDP | GDP adjusted for inflation. |
| CPI | Consumer Price Index — a weighted measure of average prices. |
| Unemployment | People able and willing to work who cannot find a job. |
| Current account | The record of trade in goods, services, income and transfers. |
Employment and unemployment
Measured by the Claimant Count and the ILO/Labour Force Survey. Types include cyclical, structural, frictional, seasonal and real-wage unemployment. High unemployment means lost output, lower tax revenue and higher benefit spending.
The current account
The current account records trade in goods and services plus income and transfers. A persistent deficit (imports > exports) can signal uncompetitiveness, though it may reflect strong growth.
Worked example
An economy reports nominal GDP growth of 5% and inflation of 3%. Real growth is roughly 5% − 3% = 2%. Only real growth reflects a genuine rise in output and living standards — a common data-response calculation.
Common exam mistakes
- Confusing real and nominal GDP.
- Treating GDP as a complete measure of welfare.
- Mixing up CPI (no housing) and RPI (includes housing).
Exam technique
Practise calculating real growth and index numbers from data, and evaluate the *limitations* of each performance measure.
Quick revision
- Real GDP ≈ nominal growth − inflation.
- Inflation measured by CPI/RPI; demand-pull vs cost-push.
- Current account: goods, services, income, transfers.