2.1, Economic growth Flashcards
Define economic growth
The long run expansion of an economy’s productive potential. Economic growth occurs when there’s a rise in GDP
How is Economic growth measured?
- Data on National income measures the size of an economy
- GDP
Distinguish between “real” and “nominal”
Real (GDP at constant prices) - Adjusted for inflation
- Referred to as the VALUE of National income
Nominal (CDP at current prices) - Not adjusted for inflation
- Referred to as the VOLUME of National income
Distinguish between “total” and “per capita”
Total - the full amount of GDP in a country/nation
Per Capita - per head so dividing GDP by population = National income per person
What is Value?
The value of output measures the amount of goods produced multiplied by the price at which they are sold
What is volume?
The volume of output measures number/amount of goods produced
What is GDP?
GDP measures goods and services produced “domestically” regardless of from whom (foreigners included)
What is GNI?
GNI is calculated as GDP plus net money transfers from other countries
What are the benefits of using GDP to measure living standards?
- Gives good aprox. of how much has been produced by an economy
- Higher GDP mean greater spending in economy
- Per capita measures are easy to compare between countries
- Internationally consistent methods for measuring GDP
What are the problems in using GDP to measure living standards?
- Not adjusted for inflation, cost of living etc
- Doesn’t indicate how equally income is distributed
-Tells the level of production but not the pattern
-Makes no adjustment for environment degradation - Excludes shadow economy
- Tells nothing of how growth is achieved
What is Purchasing Power Parities (PPPs)?
The exchange rate and cost of living in each country
What is the purpose of PPPs?
To make meaningful comparisons between countries about average standards of living
How does the UK government measure National Wellbeing??
Annual Population survey
- Overall how satisfied are you with your life?
- Overall to what extent do you think the things you do are worth while?
- Overall how happy were you yesterday?
- Overall how anxious were you yesterday?
Why does a rise in income likely increase the level of happiness in households?
- Cover basic needs more comfortably
-Reduced financial stress - Access to great opportunity
- Helps protect against problems that are likely to make people unhappy
Why at higher levels of income, will the relationship between income and happiness not be as strong?
- More money makes people happier to a point
- After a point, the marginal gain in happiness declines
- Beyond the positive gradient to where it starts to level, our happiness is derived from non-monetary factors
