5.

1 Classifying World Economies Types of GDP

Gross Domestic Product (GDP) Nominal GDP

Measures the monetary value of all final Measures economic output using current
goods and services produced in a country prices, not adjusted for inflation, useful for
within a specific time frame. comparing output within the same year.

Purchasing Power Parity (PPP) Real GDP

Adjusts GDP to account for cost of living Adjusted for inflation, allowing for accurate
and inflation differences between countries, year-to-year comparisons of economic
providing a more accurate comparison of growth.
economic productivity.
GDP per Capita
Human Development Index (HDI) Divides GDP by the population, indicating
Combines indicators of life expectancy, average economic output per person, useful
education, and per capita income to assess for assessing living standards.
the social and economic development levels
of countries. Methods of Calculating GDP

Global Peace Index (GPI) Expenditure Approach

Measures the relative position of nations' Calculates GDP based on total spending in
and regions' peacefulness, considering the economy using the formula: GDP = C +
factors like levels of violence and conflict. G + I + NX, where C is consumption, G is
government spending, I is investment, and
Multidimensional Poverty Index (MPI) NX is net exports.
Assesses poverty through various
deprivations in health, education, and living Production (Output) Approach
standards. Measures the total value of output minus
the value of intermediate goods, focusing on
Types of Economies the value added at each production stage.

Developed Economies Income Approach

Characterized by high GDP per capita, Calculates GDP based on total income
advanced technological infrastructure, and earned by factors of production, including
high standards of living. wages, rents, interest, and profits.

Developing Economies Detailed Analysis of GDP Components

Nations with lower GDP per capita, less
industrialization, and lower living standards. Expenditure Approach Breakdown

Emerging Economies Consumption (C)

Countries experiencing rapid growth and Represents private spending on goods and
industrialization, often transitioning from services, crucial for economic activity.
developing to developed status.
Government Spending (G) Near-universal literacy rates (around 99%),
Includes expenditures on public services robust healthcare systems, and high life
and infrastructure, impacting overall expectancy (around 80 years).
economic health.
Political Stability
Investment (I) Strong governance with comprehensive
Refers to business investments in capital social programs that support economic
goods, essential for future production stability.
capacity.
Characteristics of Developing Countries
Net Exports (NX)
Calculated as exports minus imports, Economic Factors
indicating a country's trade balance and its Lower GDP per capita, reliance on
impact on GDP. agriculture and manufacturing, with growing
but limited infrastructure.

5.2 Classification of Economies Social Factors

Significant literacy rate disparities,
Developed Countries especially in rural areas (some below 60%),
High per capita income, advanced and limited healthcare access.
technology, and high living standards.
Economic Indicators Overview
Developing Countries
Lower per capita income, various stages of GDP per Capita
economic growth, and socio-economic Reflects the economic output per person,
improvement. indicating the economic health of a country.

Indicators HDI
GDP measures domestic production, while A composite index measuring average
GNP includes international production by achievement in key dimensions of human
residents. HDI assesses well-being through development: health, education, and
income, literacy, and life expectancy. standard of living.

Characteristics of Developed Countries Income and Poverty Levels

Economic Factors High-Income Countries

High GDP per capita (often above $30,000), ✓ Examples: United States, Germany,
stable economies, and advanced Japan.
technology sectors (e.g., U.S. service ✓ Characteristics: High GNI per capita,
economy, Japan's tech industry) advanced infrastructure, and low absolute
poverty levels.
Social Factors ✓ Challenges: Issues of relative poverty,
income inequality, and housing affordability
persist.
 5.3 Emerging Markets
Upper-Middle-Income Countries
✓ Examples: China, Brazil, Turkey. Emerging Markets
✓ Characteristics: Significant industrial and Countries with smaller economies that show
service sectors, moderately high GNI per rapid growth and global engagement,
capita. characterized by high GDP relative to size.
✓ Challenges: Income inequality and
access to quality education and healthcare Lower Income
in rural areas. Typically have per capita incomes below
average, stimulating rapid economic growth.
Lower-Middle-Income Countries
✓ Examples: India, Nigeria, Philippines. Rapid Growth
✓ Characteristics: Reliance on agriculture Defined by growth rates of at least 3%,
and low-wage industries, with many living often higher in developing economies
near the poverty line. compared to developed ones.
✓ Progress: Strides in economic
development but significant poverty levels High Volatility
remain. Economic fluctuations are common due to
social changes, natural disasters, or price
Classification of Countries shocks.
▪ Gross National Product (GNP): Reflects
the value of goods and services produced Currency Swings
by a country’s residents, both domestically Significant fluctuations in exchange rates,
and abroad. often due to lack of control over monetary
policy.
▪ Gross Domestic Product (GDP):
Measures the total value of goods and Governance and Labor Force
services produced within a country's
borders. Governance
Advanced economies have stable and
▪ Human Development Index (HDI): transparent governance, while developing
Assesses overall human well-being, economies often face instability.
including income, literacy, and life
expectancy. Labor Force
Advanced economies feature a highly
▪ Additional Indicators: Purchasing skilled workforce, whereas emerging
Power Parity (PPP), infrastructure quality, markets are rapidly urbanizing and
access to improving skills.
technology, and others.