IB Economics — 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.