2.1.1 Measuring Economic Growth Flashcards
What are the four main macroeconomic indicators
1) Rate of economic growth
2) Rate of inflation
3) Level of unemployment
4) The state of current accounts
What are macroeconomic indicators?
Indicators which can be used to measure a country’s economic performance.
What is the equation for converting real and nominal GDP
REAL GDP = nominal GDP x base year price index/current year price index
GDP
The value of goods and services produced in a country over a given period of time.
GDP per capita
Total GDP divided by population.
Rate of economic growth
The speed at which the national output grows over a period of time.
Calculation for percentage change in GDP
Nominal GDP
A GDP figure that has not been adjusted for inflation.
What is the issue with nominal GDP?
Nominal GDP is misleading and will give the impression that GDP is higher than it is. Instead, economists remove the effect of inflation to find real GDP.
Real GDP
A GDP figure that has been adjusted for inflation.
National Happiness and Societal well-being
Whilst GDP focusses on production, happiness focuses on health, relationships, the environment, education, satisfaction at work and living conditions.
National income statistics tend to present more positive data while national happiness surveys field more normative data.
Easterlin Paradox.
- Happiness and income have a direct relationship up to a point.
- Beyond that point, the relationship is less evident.
When are index numbers used?
For making comparisons over a period of time.
The first year is the base year – the index number for this year is set at 100.
Changes up or down are expressed as numbers above or below 100.
The base year is always 100.
What would be in the index number if a country experienced a 3% rise in real GDP over a year?
The index number would rise to 103.
The base year is always 100.
What would be in the index number if a country experienced a 2% fall in real GDP over a year?
The index number would fall to 98.
Purchasing power
The real value of an amount of money in terms of what you can actually buy with it. This can vary between countries – for example, in a less developed country e.g. Malawi, $1 will buy more goods than in a more developed country e.g. Canada.
How can comparisons between countries be made using PPPs?
It involves adjusting the GDP per capita figures to take into account the differences in purchasing power in those countries, with the results usually expressed in US dollars.
This makes for a more accurate and easier comparison.
What does GDP per capita figures take into account
- The extent of the hidden economy
- Public spending
- The extent of income inequality
- Other differences in the standard of living
What does a high GDP suggest about a country?
It’s economic performance is strong.
What does a high GDP suggest about a country?
It’s standards of living is high.
How is economic output primarily measured?
Calculating the value (£billions) of all the goods and services produced in one year.
National output is usually measured by Gross Domestic Product (GDP).
How is economic growth measured by?
The change in national output over a period of time. The national output is all the goods and services produced by a country.
How is the rate of economic growth measured?
Nominal GDP
A GDP figure that has not been adjusted for inflation.
Real GDP
A GDP figure that has been adjusted for inflation.
Boom
Long periods of high economic growth rates.
Recession
Negative economic growth for two consecutive quarters. - A long recession is referred to as a slump.
Economic depression
Sustained economic downturn which lasts for a long period of time (usually several years). - This is worse than a recession.
Why is GDP per capita used?
GDP doesn’t take into account the distribution of wealth. Some countries have a very high GDP, but low standards of living.
GDP per capita can be used to indicate a country’s standards of living. This is calculated by dividing the total national output by the country’s population to get the national output per person.
Gross National Income (GNI)
The GDP plus new income from abroad. - This net income is any income earned by a country on investments and other assets owned abroad, minus any income earned by foreigners on investments domestically.
Gross National Product (GNP)
The total output of the citizens of a country (whether or not they’re resident in that country).
