2.1.1 Economic Growth Flashcards
define economic growth
an increase in the long term productive potential of an economy( an increase in the real value of goods and services produced in the economy). Measured by annual percentage change in real GDP
Define GDP
the value of goods and services produced in a country over a given period of time
define power purchasing parities
exchange rate of one country to another that compares cost of living in different countries through comparing the value of a basket of goods
define GNI
gross national income
the value of goods and services produced over a given period of time plus net overseas intrest payments and dividends
define GDP per capita
national income per head of population, used a s a measurment for standard of living (total GDP/population)
what is total GDP?
Gross Domestic Product:
the total value of national output of goods and serives produced in a year
what is economic growth?
- an increase in the real GDP (value of goods and services) produced in the economy
- long run increase in productive potential of an economy
what is nomianl GDP?
the final value of goods/ services within an economy without adjusting for inflation
what is real GDP?
the total value of goods/services within an economy adjusting for inlation
real/nominal
EXAM TIP
if ask to evaluate nominal daat, say that you cannot be completelt sure of impact on economy , as real data would be more useful and accurate
If the nominal increase in personal salary was 4% and the inflation rate is 3%, then what is the real increase in salary?
real = nomial- rate of inflation
4 - 3 = 1%
Why does the graph look like this?
In 2020 the nominal value doesn’t take into account the inflation rates that increaed
How is the GDP per capita calculated?
GDP/ country population
what is GDP per capita?
- shows how many goods/ srvices can be enjoyed per person / average output per person
- can be used as a comparison for standards of living in countries
*
what is gross national income (GNI)?
The value of goods and services produced ina given time period** plus net income from overseas** (final value of income flowing into the UK)
more accurate
what is one of the main measures of economic growth?
the rate of change of real GDP
What is the value and volume of GDP?
value: what certain goods/services are worth
volume : number of goods/services produced
GNI vs GDP
GNI is better to use for standard of living (more accurate )
* GNI calculates income rather than output
what is GNI per Capita?
the total real GNI/ Population
takes the population into account
what must you account for when comparing data for growth rates between countries?
- real better than nominal (infaltion)
- GDP per capita is better than GDP , population taken into account
what is gross national product (GNP)?
the value of goods/ services overtime through labour or property supplied by citezens of a country both domestically and overseas
value of goods made by people whether they live in the country or not
what is economic welfare?
growth in living standards (more goods produced, more things for people)
what is the problem when comparing GDPS?
- volatile exchange rates
- price levels vary (how much you can buy from each thing)
What is a purchasing power parities
How much of a currency is needed buy a basket of goods compared to another currency
* allow international comparison
a ratio of currency excahage
What is the Big Mac index?
🍔 how much a Big Mac costs around the world, and how many can be bought using the real GDP per Capita
what are the limitations of real GDP used to measure living standards? (5)
- ignores population changes
- ingores income distribution
- ignores type of goods
- ignores the underground economy
- ignores the subsitance economy
why is the fact that real GDP not taking into account population matters?
if population is grwoing faster than real GDP, then GDP per Capita will be decreasing and so everyone will be worse off than GDP suggests
why does the type of good purchased incraese GDP but not living stnadards?
because the goods being produced have negative externalities which actualy decrease living standards
what is the underground economy?
a.k.a the black market
* transactions made for illlegal things (prostitues, drugs, ) which will not be included official data (GDP) therefore it is inaccurate to measure living standards by it
* payments made in cash- private tutors
what is the subsistence economy?
- people who produce their own food and consume it themselves
- since nothing is bought and sold it cannot be recorded for in the GDP
therefore GDP underestimates and canno br used to measure living stnadar
what is the easterlin paradox?
- initially as average income increases, hapiness increses to a point where people are able to live comfortably
- however the marginal hapiness from each £ of income then begins to fall as people spend money on things they do not need
what does “marginal” mean?
one extra unit
marginal hapiness= the hapiness gained from one extra unit of income
how is hapiness measured in the UK?
- ONS- Office of National Statistics conduct a national well being survey
- this data is compared to previosu periods of times
although is nominative an not completely accurate
bhutan
what may other countries be focused on apart from GDP?
- gross national hapiness
what causes ecoomic growth?
- AS or AD shift to the right (increase)
what leads to increases in AD?
increase in:
* consumption
* investment
* goverment spedning
* exports
Decrease in :
* imports
what leads to an increase in AS ?
long run
* increase in quality or quantity of factors of production
* productivity of factors of production
short run
* decrease in cost of production
what is the difference between actual and potential growth?
- potential growth : an increase in productive potential
- actual growth: when real GDP has actually increased
why are power purchasing parities used?
to improve accuracy when comparing data between countries
* compares cost of living between countries
* compares price of a basket of common goods/ services in different countries
define the term “index number”
an economic figure which reflects price/ quantity compared with the base year
