2.2 Measures of Economic Growth Flashcards
What is GDP?
The total value of goods and services produced in a country within a given time period
When does GDP per capita increase?
If national output grows faster than population over a given time period.
(There are more goods/services to enjoy per person)
What is a nominal GDP?
GDP that refers to current prices, without taking into account inflation or other factors
What is a real GDP?
GDP that adjusts according to changes in price
What is GNI?
The value of goods and services produced in an economy over a period of time plus net income from abroad
What are 3 sources of external income?
- Remittances
- Foreign aid
- Ownership of assets in foreign countries
What are remittances?
Funds that migrants send back to their home countries
What is foreign aid?
Income from other countries or international organisations that is transferred to a poorer country
What is ownership of foreign assets?
Either a government or a domestic company buys an asset overseas
What is the output method?
Measures the value of goods and services produced. Each firm calculates the value of its output and reports it
What is the income method?
The costs of producing a good are income to different agents. Adds up all sources of income in an economy e.g wages, profit
What is the expenditure method?
Adds up the sum of all final goods and services purchased in an economy
What is GNH?
An alternative measure for economic growth, focuses on the quality of life in a non monetary sense e.g education
How does economic growth increase happiness?
- More consumption
- Better education + healthcare
- Basic needs met
- More consumer choice
How does economic growth decrease happiness?
- Increased crime
- Environmental pollution
- Diminishing income utilty
Name 3 limitations of GDP
- Fails to record non-market activities: e.g non-market (housework), informal, black market
- Fails to account for economic inequality: how growth distributed in economy
- Fails to measure negative externalities: undesirable effects from output ignored
Formula for real GDP
Nominal GDP/GDP deflator x 100
What is purchasing power parity?
Compares the buying power of different countries currencies via a representative basket of goods
2 limitations of using GDP to compare living standards between countries
- GDP does not give any indication of the distribution of income (countries with similar GDPs per capita may have different distributions)
- Large hidden economies e.g the black market, which are not accounted for in GDP (comparisons may be misleading/difficult to compare)
