2.1.1 - Economic Growth Flashcards
What is one way we can measure Economic growth ?
Rates of change of real Gross Domestic Product (GDP) as a measure of economic growth
What is GDP ?
**The value of all the goods/services produced in an economy in a year. **
What are the *two methods used to work out GDP ?
● The Expenditure method : adds up the value of all the expenditure in the economy. Consumer expenditure, Investment, Government spending and Net trade (exports – imports). C+I+G+(X-M)
● The income method : adds up the rewards for the factors of production used
Wages from labour, rent from land, interest from capital and profit from entrepreneurship
Distinction between:
real and nominal GDP
Real GDP - Real Gross is the same as GDP but takes into account inflation.
- For example, if the value of goods/services within an economy (GDP) rose by 10%, but the inflation rate was 4% then real GDP would be 6% or , if nominal GDP is £100bn and inflation is 10% then real GDP is £90bn.
Nominal GDP - Nominal GDP is the value of all the goods/services produced in an economy in a year.
Distinction between total and per capita:
Total - Total GDP is the total value of goods/services produced within an economy in a year.
Per capita - Total GDP divided by the total number of people in a country.
Distinction between value and volume:
Value - The monetary worth. (shows what certain goods/services are worth).
Volume - The physical number. (the number of goods/services that are produced).
What are other national income measures ?
● GNI - (Gross national income) worked out by taking the GDP figure and adding it to the income paid into the country by other countries for such things as interest and dividends.
- This is in contrast to GDP which doesn’t include net income received from abroad.
- GNI is similar to GNP, but is calculates income rather than output.
Comparison of rates of growth between countries and over time
Key points:
- National income statistics
- Using real GDP vs Nominal GDP.
- Using GDP per capita vs GDP.
Blurt everything you know about Purchasing Power Parities (PPP).
- Its a conversion factor that can be applied to GNI and GDP.
- It helps to compare the costs of living standards between different countries.
● It calculates the relative purchasing power of different currencies.
- 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
- The aim of PPP is to help make a more accurate standard of living comparison between countries where goods/services cost different amounts
- The limitations of using GDP to compare living standards
between countries and over time.
National Happiness
