2.1 Measures of economic performance

Question 1

Economic growth

Answer 1

The rate of change of output.
->An increase in the long term productive potential of a country.

Question 2

Gross domestic product (GDP)

Answer 2

The total value of all goods and services produced in an economy with in a year
->Measure of living standards

Question 3

Real GDP

Answer 3

GDP adjusting for inflation (does not take into account effects of inflation)

Question 4

Nominal GDP

Answer 4

GDP without adjusting for inflation (takes into account effects of inflation)

Question 5

Total GDP

Answer 5

Total value of goods/services produced within an economy in a year

Question 6

GDP per capita

Answer 6

Total GDP divided by the number of people

Question 7

Value

Answer 7

Shows what certain goods/services are worth

Question 8

Volume

Answer 8

Shows the number of goods/services that are produced

Question 9

Gross national income (GNI)

Answer 9

GDP plus net income paid into the country by other countries for things such as dividends or interest

Question 10

GDP per capita when comparing between countries

Answer 10

-If a country’s population grows, then this may cause a rise in GDP without a rise in living standards: This provides an inaccurate comparison.
-> GDP per capita takes into account population differences.

Question 11

Real GDP when comparing between countries

Answer 11

If a country has high inflation, it is likely that it also has a higher GDP growth rate. Therefore, although consumer’s incomes have not increased in real terms, the nominal GDP growth rate may suggest otherwise.

Question 12

Purchasing Power Parities (PPP)

Answer 12

-A rate at which the currency of one country would have to be converted into that of another to buy the same amount of goods and services in each country.
-PPP takes into account cost of living , so will help us better compare living standards

Question 13

Problems with GDP: Inaccuracy of data

Answer 13

Some countries are inefficient at collecting or calculating data, and therefore comparisons are less effective.

Question 14

Problems with GDP: Inequalities

Answer 14

An increase in GDP may be due to a growth in income of just one group of people and so therefore a growth in national income may not reflect living standards everywhere.

Question 15

Problems with GDP: Spending

Answer 15

Some types of expenditure, such as defence does not increase standard of living but will increase GDP.

Question 16

Problems with GDP - Underground economy

Answer 16

There is a ‘hidden’ or ‘black market’, in which people are working without declaring to avoid paying tax or continue claiming benefits, and so GDP is underestimated as these incomes are not taken into account.

Question 17

Problems with GDP - Subsistence economy

Answer 17

GDP does not take into account home-produced services. In many poorer countries, people work as subsistence farmers where they grow and consumer their own crops without trading, so GDP is underestimated.

Question 18

Easterlin paradox

Answer 18

An increase in consumption of material goods will increase happiness if basic needs
aren’t met (shelter and food), but once these needs are met, an increase in
consumption won’t increase long term happiness
(aka. happiness and income are positively correlated at low incomes but higher levels of income aren’t associated with increases in happiness)