2.1.1- measures of economic growth

Question 1

define potential economic growth?

Answer 1

an expansion in the productive capacity of an economy

Question 2

define GDP

Answer 2

It is the total value of goods and services produced in a country within a year

Question 3

define actual economic growth?

Answer 3

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

Question 4

define the business/trade cycle

Answer 4

a phenomenon whereby GDP fluctuates around its underlying trend

Question 5

how does GDP differ from season and what is the solution to make data easier to read?

Answer 5

the GDP is usually higher in the Christmas period and then falls the period after, you can smoothen this out by seasonal adjustment

Question 6

define seasonal adjustment?

Answer 6

a process by which seasonal fluctuations in a variable are smoothed out to reveal and underlying trend

Question 7

what is nominal gdp?

Answer 7

GDP measured using the current prices

Question 8

what is the issue with using nominal gdp?

Answer 8

it will always overstate the extent to which the volume of GDP is increasing as it does not account for inflation

Question 9

what is real gdp?

Answer 9

an estimate of the volume of GDP taking into account the changes in price through time

Question 10

how can you calculate real gdp?

Answer 10

(100 x nominal GDP)/price index = real gdp

Question 11

define GNI?

Answer 11

The value of goods and services produced by a

country over a period of time plus net overseas interest payments and dividends.

Question 12

why is GNI preferred over GDP?

Answer 12

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

Question 13

how can we use GNI and GDP to compare growth?

Answer 13

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

Question 14

why use GDP per capita to compare between countries?

Answer 14

they may have different population sizes

Question 15

what are purchasing power paritys?

Answer 15

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.

Question 16

why are purchasing power parities useful ?

Answer 16

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

Question 17

why does the difference between GDP between the poorest and richest countries decrease when PPP is involved?

Answer 17

this is because the cost of living is much smaller in these poorer countries

Question 18

what is the problem of the informal sector when comparing living standards?

Answer 18

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

Question 19

what is the problem of calculating the gdp and gni when comparing the living standards?

Answer 19

some countries may be inefficient at collecting or calculating the data so their comparisons may be less effective

Question 20

what is the issue of inequality when comparing living standards?

Answer 20

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

Question 21

what is the issue of the quality of good when comparing living standards?

Answer 21

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

Question 22

what is the issue of government expenditure when comparing living standards?

Answer 22

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

Question 23

What is the issue with just using Gni and GDP to compare living standards?

Answer 23

some countries may have similiar GDP however have diffrent levels of education and also healthcare

Question 24

what is the issue of enviromental disasters when comparing living standards?

Answer 24

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

Question 25

what were the 7 key factors on the UN happiness report

Answer 25

real GDP per capita, health, life expectancy, having someone to count on, perceived freedom to make life choices, freedom from corruption, and
generosity.

Question 26

what is the easterlin paradox?

Answer 26

the idea that happiness rises as incomes rise however only up to a certain income. people who cant afford basic needs will be happier when income increases then those who already fulfill their needs

Question 27

how does relative income affect happiness?

Answer 27

if you are the richest out of your group then you will tend to be happier then if you had the same income but were the poorest. income is related to social status and high social status makes us happy