2.1.1 Economic Growth

Question 1

When does economic growth occur?

Answer 1

When there is a rise in the value of Gross Domestic Product

Question 2

Explain GDP

Answer 2

GDP measures the quantity of goods and services produced in an economy.
(A rise in economic growth means there has been an increase in national output)

Question 3

What does economic growth improve in the economy?

Answer 3

It leads to higher living standards and more employment opportunities

Question 4

What else can national income be measured by?

Answer 4

Gross National Product - the market value of all products produced in an annum by the labour and property supplied by the citizens of one country

Gross National Income - the sum if value added by all producers who reside in a nation, plus net overseas interest payments and dividends

Question 5

What is the Purchasing Power Parity?

Answer 5

A theory that estimates how much the exchange rate needs adjusting so that an exchange between countries is equivalent, according to each countries purchasing power

Question 6

Limitations of using GDP to compare living standards between countries overtime

Answer 6

1. GDP does not give any indication of the distribution of income.
2. GDP may be recalculated in terms of purchasing power, so that it can account for international price differences
3. There are also large hidden economies (e.g the black market) which are not accounted in GDP
4. GDP gives no indication of welfare. Other measures such as happiness index might be used to compare living standards instead or in conjunction with GDP

Question 7

National happiness
UK national well-being

Answer 7

The Office for National Statistics (ONS) is trying to develop more ways of measuring national well-bring.

The UN happiness report found that the six factors affecting national well-bring are:
1. Real GDP per capita
2. Health
3. Life-expectancy
4. Having someone to count on
5. Perceived freedom to make life choices
6. Freedom from corruption and generosity

Question 8

The relationship between real i comes and subjective happiness

Answer 8

The UK economy grew by 5% in GDP per capita between 2007 and 2014, but showed no change in life satisfaction

However, generally, the higher the GDP per capita, the higher the average life satisfaction score

One finding is that happiness and income tend to be positively related at low levels of i comes but, once basic needs are met, higher income does mot lead to j creased happiness