2.1.1 Economic growth

Question 1

What is gross domestic product (GDP)?

Answer 1

GDP is the value of all goods/services produced in an economy in a one-year period.

Question 2

What 2 methods can GDP be measured by?

Answer 2

/Expenditure approach
/Income approach

Question 3

Explain the expenditure approach to GDP measuring?

Answer 3

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)

Question 4

Explain the income approach?

Answer 4

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.

Question 5

What is the difference between the value and volume of GPD?

Answer 5

The value is the monetary worth. The volume is the physical number.

Question 6

What does the word nominal mean?

Answer 6

In economics, the use of the word nominal refers to the fact that the metric has not been adjusted for inflation.

Question 7

What is nominal GDP?

Answer 7

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).

Question 8

What is real GDP?

Answer 8

Real GDP is the value of all goods/services produced in an economy in a one-year period - and adjusted for inflation.

Question 9

What is GDP per capita?

Answer 9

GDP per capita = GDP / the population. It shows the mean wealth of each citizen in a country.

Question 10

What does GDP per capita make easier?

Answer 10

Makes it easier to compare standards of living between countries.

Question 11

What does GDP not include?

Answer 11

It does not consider the income earned by its citizens while operating outside of the country.

Question 12

What is gross national income (GNI)?

Answer 12

Gross national income (GNI) measures the income earned by citizens operating outside of the country + the GDP.

Question 13

What is gross national product (GNP)?

Answer 13

GDP + income from abroad - income sent by non-residents to their home countries.

Question 14

What is a positive of GNP/capita?

Answer 14

GNP/capita provides a much more realistic view of a country’s wealth than GDP/capita.

Question 15

Why is using real GDP better than nominal?

Answer 15

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.

Question 16

What is a positive of real GDP/capita?

Answer 16

Using real GDP/Capita provides better information than real GDP as it takes population differences into account.

Question 17

What is a positive of real GNI/capita?

Answer 17

Using real GNI/capita is a more realistic metric for analysing the income available per person than GDP/capita.

Question 18

What is a positive of using real GNP/capita?

Answer 18

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.

Question 19

What are purchasing power parties (PPP)?

Answer 19

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.

Question 20

What is the aim of PPP?

Answer 20

The aim of PPP is to help make a more accurate standard of living comparison between countries where goods/services cost different amounts.

Question 21

What are limitations of using GDP for comparisons?

Answer 21

/Lack of information provided
/Quality of goods/services
/Does not include unpaid/voluntary work
/Differences in hours worked
/Environmental factors

Question 22

Explain how lack of information is a limitation of GDP?

Answer 22

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.

Question 23

Explain how quality of goods/services is a limitation of GDP?

Answer 23

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.

Question 24

Explain how does not include unpaid work is a limitation of GDP?

Answer 24

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.

Question 25

Explain how differences in hours worked is a limitation of GDP?

Answer 25

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.

Question 26

Explain how environmental factors is a limitation of GDP?

Answer 26

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.

Question 27

How is national happiness measured?

Answer 27

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.

Question 28

What is the relationship between happiness and income?

Answer 28

Happiness and increases in income have a direct relationship up to a point. Beyond that point, the relationship is less evident.