2.1.1: Economic Growth

Question 1

What is GDP?

Answer 1

The value of goods & services produced in an economy over a period of time.
It is an indicator of the standard of living in a country.

Question 2

What is short-run economic growth?

Answer 2

The ACTUAL percentage change in real national output (Nominal N.O./Average Price Level)
OR
percentage change in Gross Domestic Product (GDP).

Question 3

What is long-run economic growth?

Answer 3

Increase in the POTENTIAL productive capacity of the economy (can be shown on an outward shift of the PPF).

Question 4

What is real GDP?

Answer 4

The value of GDP, taking inflation into account.

Question 5

What is nominal GDP?

Answer 5

The value of GDP, taking no account of inflation.

Question 6

What is the price index formulae?

Answer 6

Nominal GDP/Real GDP X 100 = Price Index

Question 7

What is the real GDP formulae?

Answer 7

Nominal GDP/Price Index X 100 = Real GDP

Question 8

What is total GDP?

Answer 8

The overall GDP for a country.

Question 9

What is GDP per capita?

Answer 9

Total GDP divided by population.

Question 10

When does GDP per capita grow?

Answer 10

GDP per capita grows if national output grows faster than population.

Question 11

What is value?

Answer 11

What goods/services are worth.

Question 12

What is volume?

Answer 12

The number of goods/services produced.

Question 13

What is the volume formulae?

Answer 13

Volume = Value/Price.

Question 14

What is Gross National Income (GNI)?

Answer 14

GDP + Abroad Net Income (adds on what a country earns from overseas investments).

Question 15

What is Gross National Product (GNP)?

Answer 15

Value of all goods/services produced by domestic businesses and property (home and abroad).

Question 16

How are comparisons of rate of growth made over time?

Answer 16

-The data is compared with other countries to give context.
-The figures can help make judgements about economic welfare (as national income growth means a rise in living standards).
-Real & per capita figures are used.

Question 17

How are comparisons of rate of growth made between countries?

Answer 17

-Real & per capita figures are used.

Question 18

What are purchasing power parities (PPP’s)?

Answer 18

Exchange rate that compares the cost of living in different countries through comparing a typical basket of goods.

Question 19

What is an example of purchasing power parities (PPP’s)?

Answer 19

£10 in the UK will buy you one meal.
£10 (converted to 600 Rupees) in India will buy you four meals.

Question 20

What are limitations of GDP for living standards?

Answer 20

-GDP doesn’t take home-produced goods/services into account (e.g. farmers).
-GDP is underestimated due to the use of ‘hidden’ and ‘black’ markets.
-Externalities (higher economic growth is linked to increased pollution).
-Doesn’t account for inequality.

Question 21

What are limitations of GDP for comparison with other countries?

Answer 21

-Inequality (an increase in GDP may be due to a growth in income of just one group of people, therefore a growth in the national income may not increase living standards everywhere).
-Some countries are inefficient at collecting data, making comparisons less effective.
-Some types of expenditure (e.g. defence) may increase GDP without increasing living standards.

Question 22

What are the 6 criteria for National Happiness (according to the UN)?

Answer 22

-Real GDP and capita.
-Healthy life expectancy.
-Having someone to count on.
-Perceived freedom to make life choices.
-Freedom from corruption.
-Generosity.

Question 23

What is the Easterlin Paradox (graph)?

Answer 23

[HAPPINESS AND INCOME AT OPPOSITE AXES]

Question 24

What is the difference between real GDP and nominal GDP?

Answer 24

Real GDP takes inflation into account, whereas nominal GDP does not.

Question 25

What is the difference between total GDP and GDP per capita?

Answer 25

Total GDP is the overall GDP of a country, whereas per capita GDP is the overall GDP of a country divided by its population.