Measuring the Economy (Years 10–11) — Economics

Key indicators — GDP, GDP per head, inflation and unemployment rates — how to calculate them, and their limitations.

To judge how well an economy is doing, economists use a set of indicators. No single number tells the whole story, so they are read together.

Why this matters Governments use these figures to decide policy, and families feel the results in jobs and prices. But every indicator has limitations, so reading them carefully avoids drawing the wrong conclusions.

The main indicators

GDP — the total size of the economy.
GDP per head (per capita) — GDP divided by the population, a rough guide to average income.
Inflation rate — the percentage change in a price index (CPI).
Unemployment rate — the unemployed as a percentage of the labour force.

Simple calculations

GDP per head = GDP ÷ population

If GDP is $600 billion and the population is 30 million, GDP per head is 600,000 million ÷ 30 million = $20,000. Growth, inflation and unemployment are all worked out as percentages, as in earlier chapters.

The four indicators at a glance

No single number tells the whole story — which is exactly why the limitation column is where the evaluation marks are.

Indicator	What it measures	How it is found	Its limitation
GDP	The total size of the economy	Total output	Says nothing about how it is shared
GDP per head	A rough guide to average income	GDP ÷ population	It is an average — it can rise while inequality widens
Inflation rate	How fast prices are rising	Percentage change in a price index (CPI)	An overall figure; households feel different baskets of prices
Unemployment rate	How much labour is going unused	The unemployed as a percentage of the labour force	Depends on who counts as “in the labour force”

Worked example — GDP per head

GDP $600 billion, population 30 million: 600,000 million ÷ 30 million = $20,000 per head.

Whenever you are asked to evaluate GDP per head, say the word average. It can rise while many people are left no better off.

Match each indicator with what it measures:

GDP per head: A rough guide to average income
Inflation rate: The percentage change in a price index
Unemployment rate: The unemployed as a share of the labour force
GDP: The total size of the economy

Common exam mistake: quoting GDP per head as if it applies equally to everyone in a country. It is an AVERAGE - it can rise even while inequality widens and many people are left no better off, so always mention this limitation when asked to evaluate the indicator.

Limitations of the indicators

GDP per head is an average — it hides inequality, so a high average can still mean many people are poor.
GDP ignores unpaid work — caring for family members or growing your own food adds to wellbeing but is not counted.
GDP says nothing about pollution — output can rise while the environment is harmed.
Averages hide distribution — the inflation felt by a family depends on what they actually buy, which may differ from the basket.

Reading indicators together

A wise judgement uses several indicators at once. For example, rising GDP with rising unemployment and high inflation would be a warning sign, while steady growth with low inflation and low unemployment suggests a healthy economy.

Exam technique: when a question gives several indicators at once (e.g. GDP up, unemployment up, inflation high), do not just describe each separately - explicitly say what the COMBINATION suggests. Examiners reward this synthesis over a list of definitions.