Measures of Economic Wellbeing

IMPORTANT FACTS – GDP (Gross Domestic Product) is the measure of the total size of a country’s economy.

This is the economic value of all the goods and services produced and provided by a country during the course of one year; this is divided by the total number of people in that country to calculate GDP per capita. The final amount is worked out in US dollars and gives an idea of the strength of the economy. The higher the GDP the more developed a country is likely to be. In 2018, the UK had a GDP of $40,158 per person per year which ranks the UK 7th internationally. Ghana, by comparison, has a GDP of around $ 1,607per person.

In 2019, UK GDP was estimated at US$2,809,910 million(approximately £2.1 trillion) – the 5th largest economy in the world 

VIDEO– Watch this to reinforce the idea of GDP. 

Purchasing Power Parity (PPP)

This adjusts GDP for the relative cost of goods and services in different countries. Find a full explanation here. Once this has been taken into account:

Big Mac Index

This is one way to measure Purchasing Power Parity – by comparing the relative prices of Big Macs in different countries. The index was created by The Economist and has been extended to give the figure for how long someone in a country needs to work in order to earn enough for a Big Mac. It isn’t perfect as in some countries Big Macs are cheap food and in others considered a luxury. 

See here for the latest Big Mac Index. 

Other similar measures exist such as the Tall Latte Index of the cost of Starbucks coffee.

Human Development Index (HDI)

It is important to note that GDP per capita and well-being are not always linked! Whilst GDP per capita is useful, it masks inequality, particularly in countries with large populations. Being aware of indices of inequality such as the ‘Gini Coefficient’ could therefore be useful as a point of discussion

HDI offers an alternative to GDP per capita. It is a comparative measure of life expectancy, literacy, education and standards of living for countries worldwide, forming a standard means for measuring wellbeing (especially child welfare). It is used to distinguish whether a country is developed, developing or under-developed, and also to measure the impact of economic policies on quality of life. There are also HDIs for states, cities, villages, etc. collated by local organisations or companies.

The UK ranks 14th in the world in this index (according to 2020 data) and is considered to have “Very High Human Development” (Source)