2.1 Measures of Economic Performance Flashcards
what is the definition of gross domestic product (GDP)
the value of all G/S produced in an economy in a one-year period
what are the three ways to measure national output/GDP
expenditure method - C+I+G+(X-M)
income method - rewards for FOPs
output method - value G/S produced
what are the different types of GDP
nominal
real
per capita
what is nominal GDP
not adjusted for inflation
what is real GDP
adjusted for inflation
what is GDP per capita
per person ( / population)
what is gross national product (GNP)
GDP + income from abroad - income sent by non-residents to their home countries
what is gross national income (GNI)
GDP + income earned by citizens operating outside the country
what is purchasing power parity (PPP)
a conversion factor that can be applied to GDP, GNI and GNP that calculates the relative purchasing power of different countries (how much a basket of goods costs in different countries)
what is green GDP
GDP minus environmental cost
how does a lack of inequality information limit the effectiveness of using GDP as a measure of living standards
distribution of income is only taken as an average, so lacks detail about equality
how does not including the quality of G/S limit the effectiveness of using GDP as a measure of living standards
no information of the increase/decrease in the quality of G/S over time, which can dictate the standard of living
how does not including informal activity limit the effectiveness of using GDP as a measure of living standards
things such as black markets, DIY, subsistence farming and volunteering/unpaid work are not included in the GDP figure
how does double counting limit the effectiveness of using GDP as a measure of living standards
values of G/S may be counted in the primary and secondary sector
how does not including negative externalities limit the effectiveness of using GDP as a measure of living standards
things such as environmental or pollution costs are not included
how does not including FDIs limit the effectiveness of using GDP as a measure of living standards
foreign direct investment will increase GDP, but the profit may be sent to a different country
how does not including income earned abroad limit the effectiveness of using GDP as a measure of living standards
income earned abroad may be sent to a different country
what are the limitations with using GDP for comparing living standards between countries
lack of inequality information
quality of G/S not included
does not include informal activity
double counting may occur
negative externalities not included
influence of FDI and repatriation profit
factor income earned abroad
what is the human development index (HDI)
income - GDP per capita at PPP
health - life expectancy
education - mean years at school
what does the Easterlin paradox describe
happiness and increases in income have a direct relationship to a point, but beyond that point the relationship is less evident
what is the definition of inflation
an increase in the general level of prices - the average price of all G/S increases. implies that the value of money falls since more money is now needed to buy the same things
what is the definition of disinflation
when the rate of inflation falls, but does not become negative. prices are still rising but at a slower rate
what is the definition of deflation
when the rate of inflation becomes negative. the average price levels fall, and the value of money increases
what is accelerating inflation
where the rate of inflation increases
