IB Economics HL — Measuring economic activity and illustrating its variations

Key Idea: Topic 3.1 explains how we measure the economy (GDP), the difference between real and nominal, and the business cycle — the pattern of booms and recessions over time.

✅ Core definitions

📊 Three approaches to measuring GDP

All three approaches give the same answer in theory. The expenditure approach (C+I+G+X−M) is the one used in AD analysis.

🔄 The circular flow of income

📈 The business cycle

Always use real GDP for growth comparisons. Nominal GDP can rise just because of inflation, not actual output increases.