2.1 Measures Of Economic Performance Flashcards
1
Q
What is GDP?
A
- Gross Domestic Product
- total value of output produced by factors of production within the UK economy
2
Q
How can GDP be calculated?
A
- expenditure approach - adds up the value of all expenditure in the economy - consumption, government spending, investment by firms + net exports (exports - imports)
- income approach - adds up the rewards for the factors of production used - wages from labour, rent from land, interest from capital + profit from entrepreneurship
- both approaches should give the same figure as one person’s expenditure is another person’s income
3
Q
What is nominal GDP?
A
- actual value of all goods + services produced in an economy in a one year period
- calculated using current prices, so not adjusted to inflation
4
Q
What is real GDP?
A
- value of all goods + services produced in an economy in one year (output)
- calculated using constant prices + is therefore adjusted for inflation
5
Q
What is GDP per capita?
A
- GDP/ population
- shows the mean wealth of each citizen in the country
- makes it easier to compare the standards of living between countries
6
Q
What makes GNI possibly better than GDP
A
- GDP measures the value of output produced within a country’s borders —> it does not consider the income earned by its citizens while operating outside of the country
- Gross national income income (GNI) measures the income earned by citizens operating outside of the country + the GDP —> many employ their resources outside of the country’s borders + then send the income home
7
Q
What is GNI?
A
- measures the income received by a country both domestically + from overseas
- GNI = GDP + Net income from overseas
8
Q
What is GNP?
A
- Gross national product
- GDP + income from abroad - income sent by non-residents to their home countries
- GNP/capita provides a much more realistic view of a country’s wealth than GDP/capita
9
Q
Why is national income useful for making comparisons between countries?
A
- they provide insights on the effectiveness of government policies
- they allow judgements to be made about the relative wealth + standard of living within each country
- they allow comparisons to be made over the same or different periods
10
Q
Why is real GDP better than nominal GDP?
A
- one country may have a much higher rate of economic growth, but also a much higher rate of inflation
- real GDP provides a better comparison
11
Q
which real … / capita is better?
A
- real GDP/capita provides better information than real GDP as it takes population differences into account
- real GNI/capita is a more realistic metric for analysing the income available per person than GDP/capita
- real GNP/capita provides information on the income that is actually within a country’s borders -> this value can be significantly different from GDP/capita
12
Q
What is economic growth?
A
- The % increase in real GDP over a period of time usually one year
- real = adjusted to inflation - ensures changes in real GDP are due to changes in output
13
Q
What is Purchasing power parities?
A
- PPP means that the rate of conversion of one currency into another is such that the same basket of goods + services would have the same cost
- so the same amount of currency will have the same purchasing power
- can be applied to GDP, GNI, GNP
14
Q
What is the aim of PPP?
A
to help make a more accurate standard of living comparison between countries where goods/services cost different amounts
15
Q
Argument for GDP per capita as a measurement of standards of living?
A
- economists generally say that living standards are increasing in a country when the GDP per capita figure rises
- argument goes with more income on average, citizens can buy more good + services, experiences which will boost their standards of living
- GDP per head has its limitation as a measure of living standards but it does offer a starting point for comparing living standards between countries + how living standards vary over time
