1- Economic Growth, Performance And GDP

Question 1

What is economic growth?

Answer 1

An increase in the productive potential of the economy

Question 2

What is short run economic growth?

Answer 2

The increase in real GDP over a certain period of time

Question 3

What is long run economic growth?

Answer 3

The expansion of the economy’s capacity to produce goods and services.
Shift to the right of the PPF

Question 4

How can you measure economic performance?

Answer 4

1. Unemployment figure
2. Rate of inflation
3. Rate of economic growth

Question 5

What are index numbers?

Answer 5

Used to track each economic factor
Used to observe how the economy is functioning

Question 6

How do you workout the index number?

Answer 6

Index number = (raw number in current period / raw number in base period) x 100

Question 7

What is a real value?

Answer 7

-The base price/original price
-The quantities produced after having removed the effects of inflation

Question 8

What is a nominal value?

Answer 8

• Measurements made using prices that are current without discounting inflation
• Current prices including inflation

Question 9

What is real GDP?

Answer 9

• The value of goods and services using base prices
• It is adjusted for inflation

Question 10

What is nominal GDP?

Answer 10

• The value of goods and services measured using current prices with no adjustment for inflation

Question 11

What GDP is more useful (real or nominal) to measure standard of living?

Answer 11

Real GDP is more useful
Nominal GDP is always exaggerated and is therefore not a true reflection if the country’s GDP

Question 12

What does real GDP give you an insight into?

Answer 12

Allows you to have an insight into a country’s living standards

Question 13

What is the price index formula?

Answer 13

(Nominal GDP/Real GDP) x 100

Question 14

How is the price index different to the CPI?

Answer 14

-Price index measures price of purchases by consumers, government and businesses
-CPI only measures price of purchases by consumers

Question 15

What is GDP?

Answer 15

GDP is the total output of a country in a given time period

Question 16

What does GDP give us an indication of?

Answer 16

The standards of living in a country

Question 17

What is GNI?

Answer 17

• GDP+/- the net income from residents abroad
• It adds what a country earns from overseas and subtracts what foreigners earn in a country and send back home from the GDP

Question 18

What is the preferred measure of economics growth?

Answer 18

GNI - As it is more closely reflects the incomes of the residents, including net flows between countries

Question 19

What is GPI

Answer 19

Genuine progress indicator
Economic tool used to measure the health of a nations economy

Question 20

What does GPI incorporate?

Answer 20

It incorporates economic, environmental and social factors
Such as : family structure, benefits from higher education, crime, pollution

Question 21

What is the difference between GPI and GNI

Answer 21

GNI only incorporates economic factors whereas GPI also incorporates social and environmental factors

Question 22

How do you calculate real GDP?

Answer 22

(Nominal GDP / Price index) x 100

Question 23

What does the GDP growth rate measure and how do you calculate it?

Answer 23

You calculate it by looking at the normal percentage change.
It measures the rate of economic growth in an economy

Question 24

What is meant by GDP per capita?

Answer 24

Income per person

Question 25

How do you measure GDP per capita?

Answer 25

Country’s GDP / country’s population

Question 26

What does GDP per capita allow

Answer 26

It allows average income per person in different countries to be compared

Question 27

What is power purchasing parity (PPP)?

Answer 27

It compares how much a typical basket of goods in one country costs compared to in another country

Question 28

What does PPP allow us to compare?

Answer 28

Allows us to compare living standards

Question 29

What does PPP take into account?

Answer 29

It takes into account the cost of living and so helps us better compare living standards amongst different countries

Question 30

What are the difficulties in measuring GDP?

Answer 30

1. Exclusion of real transactions - only items which are purchased and sold through the market are included
2. The value of leisure - The satisfaction we get from recreational activities and other uses of our leisure time are also not included in GDP
3. The underground economy - This economy consists of transactions that are never reported to tax and other gov authorities. Also illegal goods such as drugs and prostitution
4. Zero price goods are excluded from GDP- gifts that are given and received are excluded
5. Accounting for inflation - we need to compare real GDP instead of nominal if we make international comparisons and comparisons over time

Question 31

What is the expenditure method of calculating GDP?

Answer 31

C + I + G + (X-M) = Aggregate demand: : total spending from all sectors in the economy

C- consumers
I - investment
G- government spending
X - exports
M - imports

Question 32

What is the output method of calculating GDP?

Answer 32

Output of primary sector + output of secondary sector + output of tertiary sector

Question 33

What is aggregate demand?

Answer 33

Total demand of goods and services in an economy at any given time