2.1.1 Economic growth

Question 1

Define GDP

Answer 1

The value of all goods and services produced in an economy in a given year

Question 2

What is the expenditure method of calculating GDP

Answer 2

Consumer expenditure + investment + government spending + net trade (export - import)

Question 3

Define Real GDP

Answer 3

The value of all goods and services produced in a given year, adjusted for inflation

Question 4

Define Nominal GDP

Answer 4

The value of all goods and services produced in an economy, not adjusted for inflation

Question 5

Total GDP

Answer 5

The total value of all goods and services produced in a year

Question 6

GDP per Capita

Answer 6

The GDP of a country divided by the countries population. Gives an average income per person. Easier to use when comparing living standards in different countries

Question 7

Value

Answer 7

Shows what certain goods are worth

Question 8

Volume

Answer 8

The number of goods and services produced

Question 9

GNI (Gross National Income)

Answer 9

The value of goods and services produced in a country over a period of time PLUS net overseas interest payments and dividends

Question 10

Data compared to other countries to put figures into context

Answer 10

• Increase in national income means a rise in living standards as the economy is producing more goods and services and therefore people have access to more things
• If a country’s population grows, GDP could grow without there being an increase in the living standards
  Real GDP strips out the effects of inflation and therefore more accurate

Question 11

What is PPP

Answer 11

Purchasing Power Parity
An exchange rate of one currency for another which compares how much a typical basket of goods costs compared to in another country’s currency.

How much of one country’s currency is needed to buy the same basket of goods with another country’s currency

Question 12

Limitations of GDP

Answer 12

• Doesn’t take into account the improving quality of goods. For example a phone 10 years ago has fewer functions than a phone for the same price today. Since the value is the same, the GDP is also the same despite the phone being of worse quality.
• Some people work without declaring their income to avoid paying taxes and keep claiming benefits and therefore the GDP would be lower than it actually is
• GDP doesn’t take into account other factors that affect living standards such as pollution. some factors that increase GDP decrease the standard of living such as pollutants from factories

Question 13

What is the easterlin paradox

Answer 13

The idea that as you get richer, you don’t necessarily get happier. If someone is poor and their income rises, they will be happier as it might mean they are now able to afford healthcare or send their children to school. However, someone who is already rich wont become happier because of a rise in income.