2.1 - Economic growth

Question 1

Economic growth

Answer 1

• Economic growth refers to the rate of increase in a country’s real GDP over time.
• It signifies an expansion of an economy’s production capacity and is a key indicator of its overall economic health.

Question 2

Typically Measuring economic growth

Answer 2

• Economic growth is typically measured by calculating the percentage change in real GDP over a specific period, such as a year.
• The formula for growth rate is: Growth Rate = [(GDP at Time 2 - GDP at Time 1) / GDP at Time 1] × 100.

Question 3

Real values

Answer 3

Real values adjust for inflation and reflect changes in the quantity of goods and services produced.

Question 4

Nominal values

Answer 4

Nominal values do not adjust for inflation and represent current market prices.

Question 5

Total values

Answer 5

Total values represent the aggregate sum of a variable for a given population or area.

Question 6

Per capita values

Answer 6

Per capita values represent the average amount per person and are calculated by dividing the total by the population.

Question 7

Value

Answer 7

Value represents the monetary worth of goods and services produced.

Question 8

Volume

Answer 8

Volume measures the physical quantity of goods and services produced, disregarding their monetary value.

Question 9

Gross National Income (GNI)

Answer 9

• GNI includes the total income earned by a country’s residents and businesses, both domestically and abroad.
• It is a broader measure than GDP and considers income earned from overseas investments and remittances.

Question 10

Comparison of Rates of Growth Between Countries and Over Time

Answer 10

1. Cross - Country Comparisons
   - Comparing growth rates between countries helps assess relative economic performance.
   - It can reveal disparities in development and highlight factors contributing to growth.
2. Long-Term Trends
   - Examining growth rates over time reveals economic patterns and trends.
   Long-term analysis can identify periods of economic expansion, recession, or stagnation.

Question 11

Purchasing Power Parities (PPPs)

Answer 11

• PPPs are exchange rates that equalise the purchasing power of different currencies for a common basket of goods.
• They account for price differences between countries and facilitate meaningful international comparisons.

Question 12

Limitations of Using GDP to Compare Living Standards

Answer 12

1. Income Distribution: GDP per capita does not account for income inequality, and a high GDP may conceal disparities in living standards.
2. Non-Market Activities: GDP excludes non-market activities like household labor and informal economies, leading to an incomplete picture of economic activity and living standards.
3. Quality of Life: GDP does not measure factors such as healthcare, education, environmental quality, and overall well-being.
4. GDP does not take into account externalities which may unintentionally affect living standards

5.Quality of goods and services :
- The quality of goods and services is much higher
than those fifty years ago, but this is not necessarily reflected in the real price of these goods and services.
- Therefore, living standards may have increased more than
GDP would suggest since the quality of goods and services has improved greatly.
- Improved technology may allow prices to fall, suggesting falling living standards,
when this is not the case.

6. Spending: Some types of expenditure, such as defence, does not increase standard
   of living but will increase GDP. For example, increased military spending would increase GDP but not living standards

Question 13

National happiness
- UK National Wellbeing

Answer 13

• Some countries, including the UK, have explored measures of national wellbeing to complement GDP.
• These measures consider factors like life satisfaction, mental health, and social connections.

Question 14

Gross domestic product (GDP)

Answer 14

It is the total value of all final goods and services produced in a country/economy within a given time period

Question 15

Relationship Between Real Incomes and Subjective Happiness

Answer 15

• Research suggests that while higher incomes are associated with increased happiness,
• up to a point, the relationship between income and happiness diminishes beyond a certain income level.

Example: The World Happiness Report ranks countries based on factors like income, social support, life expectancy, freedom to make life choices, trust, and generosity.