Economics Tuition – Explain the indicators used in assessing the economic health of a country

Explain the indicators used in assessing the economic health of a country.

The economic health of a country refers to the standard of living (SOL) of a country, which includes the material and non-material aspects.

For the material aspect of SOL, it determines the level of goods and services produced and are available for the consumption by the people and is commonly measured by the value of Gross Domestic Product (GDP) or Gross National Product (GNP). The GDP is an effective indicator for economic performance and standard of living. The derivation of real per capita GDP from the value of GDP after it has discounted for inflation with the GDP deflator and divided by the population figure is the value to represent quantitative standard of living. When there is an increase in value of GDP will mean that the tax revenue the government can collect will be higher and thus provide more funding for government expenditure to improve the infrastructures and facilities to improve the convenience and comfort of lives of the people.

However, there are limitations in using GDP as an indicator of the economic health of a country. The value of GDP may provide assessment of the level of standard of living but it does not help to measure the qualitative aspect of standard of living.

To determine the qualitative aspect of standard of living, the Human Development Index (HDI) is used to determine the degree of progress of the well-being of the citizens. It measures the life expectancy, education index. Also, the Measurement of Economic Welfare (MEW) will determine the value of the qualitative aspects of life in monetary terms.


This article is contributed by Mr. Simon Ng, founder and principal JC Economics Tutor of Economicsfocus, who has 20 years of teaching experience. Currently, Mr. Simon Ng provides specialized Economics Tuition and GP Tuition. To read more articles on Economics issues and skills development, please refer to the JC Economics Essays blog.