2.1.1 - economic growth Flashcards
What does GDP measure in an economy?
GDP measures the total value of national output of goods and services produced in an economy in a given period of time, at current prices.
What is value and volume?
- The value of goods and services shows what they are worth
- The volume shows the number that are produced
What does GDP measure from year to year?
GDP measures the flow of income, expenditure, and output from year to year.
What does GDP exclude?
Transfer payments, private transfers of money between individuals, income not registered with the Inland Revenue (‘Hidden Economy’)
What other factors does economic growth depend on, other than GDP?
- Methods of calculation/reliability of data
- Relative exchange rates and PPP
- Type of GOV spending
- The initial size of the economy
What are the limitations of GDP?
- Doesn’t account for changes in population structure, including changes in inequality (GDP per capita)
- Non-holistic as doesn’t account for environmental degregation and other negative externalities, as well as subjective well-being measures
- Ignores the nature of output that is being produced, as well as changes in quality
- Fails to account for non-market activities such as volunteering, caregiving, and household work
- Ignores type of jobs, including job satisfaction and leisure time
- Changes in methods used to calculated GDP; data often needs to be revised
- Countries can manipulate data
- Doesn’t take into account different proportions of spending between countries
- Doesn’t take into account the ‘hidden economy’
What does GDP per capita measure?
GDP per capita measures the average economic output per person in a country.
Why is GDP per capita useful?
It allows comparison of the economic performance of different countries while considering their population sizes.
What is a recession in terms of GDP?
A recession occurs when GDP declines for a sustained period, conventionally 6 months, causing a decrease in economic activity
How is real GDP calculated?
nominal GDP/GDP deflator * 100
What is nominal GDP?
A measure of economic growth as it shows the total value of goods and services produced in a country in a given year, often appears higher than real GDP
What is real GDP?
A better measure of economic growth, as it shows the change in the actual total value of goods and services produced in a country, after taking inflation into account
What is the GDP price deflator?
The GDP price deflator is a measure of the prices of all final goods and services produced in a given year, relative to the prices of a base year.
What does GNI measure?
Measures GDP, plus net income overseas (interest payments and dividends). Gives a more inclusive measure of the income of a country and therefore a more accurate guide to living standards, particularly in countries with large foreign receivables or outlays
What is economic growth?
An increase in the real GDP of an economy in a given period of time; increase in potential output of an economy
What is standard of living?
A measure of economic welfare and wellbeing
What is export led growth?
A significant part of the expansion of real GDP flows from the successful exporting of goods and services to other countries
What is actual economic growth?
An increase in actual value of output of the economy in the year
* It is also referred to as ‘short-run’ economic growth as there doesn’t necessarily need to be any change to the factors of production for there to be actual economic growth
* AD-AS diagram: actual economic growth is shown by an increase in Y
What is potential economic growth?
An increase in the value of an economy’s productive potential
*It is also referred to as ‘long-run’ economic growth as change to the factors of production is reuired, which are only fully flexible in the long run
* AD-AS diagram: potential economic growth is shown by an increase in YFE
What is a PPP?
Purchasing Power Parity, a comparison of the prices of given goods in different areas after adjusting at the current exchange rate for the different currencies
How is PPP calculated?
- Calculated by comparing the price of a basket of comparable goods and services in different countries
- See if currency is overvalued or undervalued by comparing the nominal exchange rate to the real exchange rate
- Takes into account the cost of living, and so better comparisions of living standards
What is the PPP exchange rate?
Approximates the adjustment that must be made on the currency exchange rate between countries that allows the exchange to be equal to the purchasing power of each country’s currency
What is national happiness?
A subjective concept considering the welfare of a country’s citizens
How is national happiness measured?
Using a combination of surveys asking people to self-assess their own happiness as well as measurable indices which affect broader welfare levels, e.g. levels of literacy, access to health care, political freedom, quantity of leisure, income levels and pollution levels.
What is Gross National Happiness?
A holistic measure including both traditional areas of socio-economic concern such as living standards, health and education and less traditional aspects of culture and psychological wellbeing.
How does an increase in income affect happiness for people who are poor?
For people who are poor, an increase in income leads to greater happiness.
What is the Easterlin Paradox?
The Easterlin Paradox is the idea that once basic needs are met, additional income doesn’t increase long-term happiness, even in wealthier countries.
Does a doubling of GDP in wealthier countries significantly boost happiness?
No, even a doubling of GDP in wealthier countries like the UK won’t boost happiness significantly.
How does social comparison affect happiness?
People are happier if they are wealthier than those around them because income is tied to social status, which impacts overall well-being.
