Economic growth Flashcards
What is GDP
(Gross domestic product) is the measure of the size of the country’s economy
Ways to measure GDP
1) Output - the total value of goods and services (‘output’) produced
2) income
3) Expenditure - what everyone in the country has spent
Limitations of GDP
1) Hidden economy - unpaid work isn’t captured in official figures, such as caring for an elderly relative
2) Inequality - doesn’t tell us how income is split across a population; rising GDP could result from the richest getting richer, rather than everyone becoming better off
3) Just because GDP is increasing, it doesn’t mean an individual person’s standard of living is improving
4) Doesn’t take into account the environmental impact
5) doesn’t take into account well-being (health, relationships, education, skills and finances)
How does measuring GDP help a business
Able to judge when to expand and hire people, and it lets government work out how much to tax and spend
How often are GDP figures measured
Every month, but the quarterly figures (3 months) are the the most widely watched
What would the quarterly GDP look like in a growing economy?
Slightly bigger than the quarter before, a sign that people are doing more work and getting (on average) a little bit richer
Why do economists, politicians and businesses like to see GDP steadily rising?
Usually means people spend more, more jobs created, more tax is paid and workers get better pay rises
What does it mean when GDP is falling
Economy is shrinking
What is a recession
When two quarters in a row have a negative GDP
What does a recession mean for businesses
Pay freezes and lost jobs
What did the COVID pandemic cause for the economy
Forced the government to borrow hundreds of billions of pounds to support the economy
Why is it good when GDP is going up steadily
People will pay more tax simply because they’re earning and spending more. This means more money for the government to spend on public services, such as schools, police and hospitals
What was the % of borrowing during COVID pandemic
Equivalent to 14% of GDP in the first year, the highest proportion since WW2
What are the stages of a business/trade cycle
1) Boom
2) Recession
3) Slump
4) Recovery
What does Output refer to when measuring GDP?
The total value of the goods and services produced by all sectors of the economy - agriculture, manufacturing, energy, construction, the service sector and government