2.1.1- measures of economic growth Flashcards
define potential economic growth?
an expansion in the productive capacity of an economy
define GDP
It is the total value of goods and services produced in a country within a year
define actual economic growth?
the rate of change of output within an economy usually measured in percentage rate of growth of real GDP or GNI in a given period
define the business/trade cycle
a phenomenon whereby GDP fluctuates around its underlying trend
how does GDP differ from season and what is the solution to make data easier to read?
the GDP is usually higher in the Christmas period and then falls the period after, you can smoothen this out by seasonal adjustment
define seasonal adjustment?
a process by which seasonal fluctuations in a variable are smoothed out to reveal and underlying trend
what is nominal gdp?
GDP measured using the current prices
what is the issue with using nominal gdp?
it will always overstate the extent to which the volume of GDP is increasing as it does not account for inflation
what is real gdp?
an estimate of the volume of GDP taking into account the changes in price through time
how can you calculate real gdp?
(100 x nominal GDP)/price index = real gdp
define GNI?
The value of goods and services produced by a
country over a period of time plus net overseas interest payments and dividends.
why is GNI preferred over GDP?
it is preferred because it more closely represents the incomes of the residents, this is especially the case in places such as Pakistan and the Philippines where there is a large inflow of money from people working abroad
how can we use GNI and GDP to compare growth?
you can compare to the changes in real GDP/GNI per capita between similar countries over set time to see if they have done well
why use GDP per capita to compare between countries?
they may have different population sizes
what are purchasing power paritys?
An exchange rate of one currency for another which compares how much a typical
basket of goods in the country costs compared to one in another country.
why are purchasing power parities useful ?
they make it easier to compare between countries due to the fact it takes into the account the costs of living so more useful to compare living standards
why does the difference between GDP between the poorest and richest countries decrease when PPP is involved?
this is because the cost of living is much smaller in these poorer countries
what is the problem of the informal sector when comparing living standards?
GDP does not take into account home-produced services, so in many poorer countries people work as subsistence farmers where they grow and consume their own crops without trading, and so the GDP is
underestimated
what is the problem of calculating the gdp and gni when comparing the living standards?
some countries may be inefficient at collecting or calculating the data so their comparisons may be less effective
what is the issue of inequality when comparing living standards?
the total GDP may increase however the increase may be because of only one particular group, therefore the living standards for everyone else will remain same
what is the issue of the quality of good when comparing living standards?
the quality of goods has been improving over the last 50 years however this may not be reflected in the price, improved technology may make it cheaper to produce so price may of fallen
what is the issue of government expenditure when comparing living standards?
Some types of expenditure, such as defence, does not increase standard of living but will increase GDP, UK GDP was high during WW2 however living standards were not good
What is the issue with just using Gni and GDP to compare living standards?
some countries may have similiar GDP however have diffrent levels of education and also healthcare
what is the issue of enviromental disasters when comparing living standards?
if a oil tanker breaks close to a beach then it may damage living standards as it makes beach less beautiful however the cleaning up process will increase GDP making the false impression living standards have increased
