2.1.1 Economic Growth Flashcards
What is GDP?
Gross Domestic Product - the final market value of all goods and services produced within a year
What political and economic event in 2008 caused GDP to fall?
The Financial Crisis
What is economic growth?
The rate of change of economic output usually measured by changes in real GDP
A recession is defined as what?
Two quarters of negative economic growth
What is real GDP?
The value of all goods and services in an economy adjusted for changes in the price level
What is nominal GDP?
The value of all goods and services in an economy expressed in the current price level
What does GDP per capita mean?
GDP / population
What is a slump?
Historically low GDP
What is a boom?
Historically high GDP
What are the 4 limitations to using GDP to compare countries?
- no common currency
- accounting techniques vary
- price level changes
- climate can effect figures
What is GNI?
Gross National Income - GDP, plus income from other countries
What is GNP?
Gross National Product - GDP plus income from other countries, minus income claimed by non residents
What is potential economic growth?
An expansion in the productive capacity of an economy
What is a actual economic growth?
The rate of growth of real GDP
Why are actual economic growth and potential economic growth different things?
Because the economy isn’t always operating at full capacity
What is the rate/business cycle?
Where GDP fluctuates around an underlying trend
How do different accounting techniques make comparing economic growth challenging?
Countries have an informal sector, that differs from country to country. Some transactions go unrecorded in some countries, whereas they don’t in others
What is purchasing power parity (PPP)?
An exchange rate adjusted to reflect the relative purchasing power of incomes in different countries
How does a difference in exchange rates make comparing economic growth difficult?
Different currencies and incomes have different purchasing power parities meaning they buy a different amount of good in different countries
What is the Easterlin paradox?
The idea that happiness increases in relation to wealth and income, however only up to a pooint
Name 3 factors that affect national wellbeing?
- family relationships
- financial situation
- health
Define productivity?
The output per unit of good
What are the limitations of using GDP to compare living standards?
- difference in exchange rates
- the size of the informal economy (accounting methods vary)
- a growth in GDP can reflect a growth in wages for the highest earners, not everyone // GDP per capita
What 4 things cause economic growth?
- improvements in technology
- lowering cost of raw materials, or discovering new ones
- increase in labour force
- rise in government spending
What are the 4 advantages to economic growth?
- lower unemployment
- higher average incomes
- innovation
- improved balance of payments
What are the 5 costs to economic growth?
- inflation
- trade deficit
- negative externalities
- inequality
- economic problem
Explain the problem with GDP? (inequalities)
Income distribution changes over time, may only be a rise in the extreme rich that causes a rise in rGDP. Also takes into account MNCs profit, which may be sent abroad
Explain the problem with GDP? (quality)
rGDP is simply the market value of all goods and services produced in the economy. So does not directly mean a rise in living standards. For example, technology means the price of goods has fallen indicating a fall in GDP as market value would fall, however living standards would rise.
Explain the problem with GDP? (spending)
Spending of defence, for example, increases AD but does not reflect an increase in living standards
Explain how GDP could be flawed?
Economic growth can be measured in other ways, education, happiness, living standards e.c.t.
