Cambridge International as and a level Economics Ebook

Money GDP: 
total output measured in current prices.
Real GDP: 
total output measured in constant prices.
KEY TERMS
TOP TIP
In analysing economic data, check carefully whether the 
data are in real or nominal terms.
SELF-ASSESSMENT TASK 
9.4
In 2016 a country’s GDP is $1,000. In 2017 nominal 
GDP rises to $1,092 and the price index increases by 
4%. Calculate:
a
real 
GDP
b
the percentage increase in real GDP.
Comparison of economic growth 
performance over time and between 
countries
Changes in real GDP are used to calculate economic 
growth rates. For example, the real GDP of Indonesia grew 
from US$846.8 billion in 2012 to US$878 billion in 2013. 
Th
is meant that the economic growth rate was 5.8%.
Table 9.1
compares the average annual growth rates for 
fi ve Asian and fi ve European economies, with the Asian 
economies experiencing more rapid economic growth. 
Indeed, Greece experienced negative economic growth 
meaning that its output declined.
In comparing economic growth rates over time and 
between countries, care has to be taken over a number of 
issues. One of these is that the offi
cial real GDP fi gures 
may understate the true change in output. Th
is is because 
of the existence of, and changes in, what is called the 
shadow, hidden or underground economy. Th
ese terms 
refer to undeclared economic activity. Th
ere are two main 
reasons why people may not declare their earned income 
to the authorities. One is that they are seeking to evade 
paying tax. For example, a plumber may receive payment 
for undertaking jobs in his spare time and not declare the 
income he receives to the tax authorities. So some of the 
services he produces will not be included in GDP. Another 
reason for not declaring economic activity is that the 
activity is itself illegal, for example smuggling goods.