2.1.1 Economic growth Flashcards
What is gross domestic product (GDP)?
GDP is the value of all goods/services produced in an economy in a one-year period.
What 2 methods can GDP be measured by?
/Expenditure approach
/Income approach
Explain the expenditure approach to GDP measuring?
The expenditure approach: adds up the value of all the expenditure in the economy. This includes consumption, government spending, investment by firms and net exports (exports - imports)
Explain the income approach?
The income approach: adds up the rewards for the factors of production used. Wages from labour, rent from land, interest from capital and profit from entrepreneurship.
What is the difference between the value and volume of GPD?
The value is the monetary worth. The volume is the physical number.
What does the word nominal mean?
In economics, the use of the word nominal refers to the fact that the metric has not been adjusted for inflation.
What is nominal GDP?
Nominal GDP is the actual value of all goods/services produced in an economy in a one-year period. There has been no adjustment to the amount based on the increase in general price levels (inflation).
What is real GDP?
Real GDP is the value of all goods/services produced in an economy in a one-year period - and adjusted for inflation.
What is GDP per capita?
GDP per capita = GDP / the population. It shows the mean wealth of each citizen in a country.
What does GDP per capita make easier?
Makes it easier to compare standards of living between countries.
What does GDP not include?
It does not consider the income earned by its citizens while operating outside of the country.
What is gross national income (GNI)?
Gross national income (GNI) measures the income earned by citizens operating outside of the country + the GDP.
What is gross national product (GNP)?
GDP + income from abroad - income sent by non-residents to their home countries.
What is a positive of GNP/capita?
GNP/capita provides a much more realistic view of a country’s wealth than GDP/capita.
Why is using real GDP better than nominal?
One country may have a much higher rate of economic growth, but also a much higher rate of inflation. Real GDP provides a better comparison.
What is a positive of real GDP/capita?
Using real GDP/Capita provides better information than real GDP as it takes population differences into account.
What is a positive of real GNI/capita?
Using real GNI/capita is a more realistic metric for analysing the income available per person than GDP/capita.
What is a positive of using real GNP/capita?
Using real GNP/capita provides information on the income that is actually within a country’s borders. This value can be significantly different from GDP/Capita.
What are purchasing power parties (PPP)?
Purchasing power parity (PPP) is a conversion factor that can be applied to GDP, GNI and GNP. It shows the number of units of a country’s currency that are required to buy a product in the local economy, as $1 would buy of the same product in the USA.
What is the aim of PPP?
The aim of PPP is to help make a more accurate standard of living comparison between countries where goods/services cost different amounts.
What are limitations of using GDP for comparisons?
/Lack of information provided
/Quality of goods/services
/Does not include unpaid/voluntary work
/Differences in hours worked
/Environmental factors
Explain how lack of information is a limitation of GDP?
The distribution of income in an economy is provided as an average (GDP/capita). The differences in the standard of living within the same country can be significant.
Explain how quality of goods/services is a limitation of GDP?
GDP provides no information on the increase/decrease in the quality of goods/services over time. If quality worsens but prices are lower, then the standard of living is judged to have increased.
Explain how does not include unpaid work is a limitation of GDP?
If it included voluntary/unpaid work, then GDP/capita would be higher. For example some economies have a high amount of family child care provision. This increases standards of living but is not recorded in any way.
Explain how differences in hours worked is a limitation of GDP?
GDP data does not capture the amount of time taken to produce the GDP/capita. In one country, where it takes less time to generate the income than in a similar country, the standard of living would actually be higher.
Explain how environmental factors is a limitation of GDP?
GDP does not capture the environmental and health impacts of generating the income within a country (externalities). In one country, where there are fewer externalities in generating the income the standard of living would be higher.
How is national happiness measured?
National happiness and societal well-being are measured in the UK by the Office for National Statistics (ONS). National incomes statistics tend to present more positive data while national happiness surveys yield more normative data.
What is the relationship between happiness and income?
Happiness and increases in income have a direct relationship up to a point. Beyond that point, the relationship is less evident.
