2.1.1 Measuring Economic Growth

Question 1

What are the four main macroeconomic indicators

Answer 1

1) Rate of economic growth
2) Rate of inflation
3) Level of unemployment
4) The state of current accounts

Question 2

What are macroeconomic indicators?

Answer 2

Indicators which can be used to measure a country’s economic performance.

Question 3

What is the equation for converting real and nominal GDP

Answer 3

REAL GDP = nominal GDP x base year price index/current year price index

Question 4

GDP

Answer 4

The value of goods and services produced in a country over a given period of time.

Question 5

GDP per capita

Answer 5

Total GDP divided by population.

Question 6

Rate of economic growth

Answer 6

The speed at which the national output grows over a period of time.

Question 7

Calculation for percentage change in GDP

Answer 7

Question 8

Nominal GDP

Answer 8

A GDP figure that has not been adjusted for inflation.

Question 9

What is the issue with nominal GDP?

Answer 9

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.

Question 10

Real GDP

Answer 10

A GDP figure that has been adjusted for inflation.

Question 11

National Happiness and Societal well-being

Answer 11

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.

Question 12

Easterlin Paradox.

Answer 12

• Happiness and income have a direct relationship up to a point.
• Beyond that point, the relationship is less evident.

Question 13

When are index numbers used?

Answer 13

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.

Question 14

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?

Answer 14

The index number would rise to 103.

Question 15

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?

Answer 15

The index number would fall to 98.

Question 16

Purchasing power

Answer 16

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.

Question 17

How can comparisons between countries be made using PPPs?

Answer 17

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.

Question 18

What does GDP per capita figures take into account

Answer 18

• The extent of the hidden economy
• Public spending
• The extent of income inequality
• Other differences in the standard of living

Question 19

What does a high GDP suggest about a country?

Answer 19

It’s economic performance is strong.

Question 20

What does a high GDP suggest about a country?

Answer 20

It’s standards of living is high.

Question 21

How is economic output primarily measured?

Answer 21

Calculating the value (£billions) of all the goods and services produced in one year.

National output is usually measured by Gross Domestic Product (GDP).

Question 22

How is economic growth measured by?

Answer 22

The change in national output over a period of time. The national output is all the goods and services produced by a country.

Question 23

How is the rate of economic growth measured?

Answer 23

Question 24

Nominal GDP

Answer 24

A GDP figure that has not been adjusted for inflation.

Question 25

Real GDP

Answer 25

A GDP figure that has been adjusted for inflation.

Question 26

Boom

Answer 26

Long periods of high economic growth rates.

Question 27

Recession

Answer 27

Negative economic growth for two consecutive quarters. - A long recession is referred to as a slump.

Question 28

Economic depression

Answer 28

Sustained economic downturn which lasts for a long period of time (usually several years). - This is worse than a recession.

Question 29

Why is GDP per capita used?

Answer 29

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.

Question 30

Gross National Income (GNI)

Answer 30

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.

Question 31

Gross National Product (GNP)

Answer 31

The total output of the citizens of a country (whether or not they’re resident in that country).