Economic Growth Flashcards
What is GDP?
The value of all goods and services produced in an economy over a given period of time
What is GDP per capita?
GDP divided by the total population
Define Real GDP
The value of an economy’s output in a given year, adjusted for changes in price level (inflation) from a base year
Define Nominal GDP
The measure of an economy’s output produced in a year, not accounting for changes in price due to inflation
Define Gross National Income (GNI)?
The total amount of money earned by a nation over a period of time, accounting for overseas investments and remittances.
GNI = GDP + NPIA (net property income from abroad)
What is Purchasing Power Parity?
PPP is a measure of the price of a specific ‘basket of goods’ in different countries, allowing for a comparison between the purchasing power of different countries’ currencies.
Why is PPP necessary (2)?
1) Exchange rate fluctuations could suggest that living standards have fallen when output may actually be rising.
2) Exchange rates are more relevant for internationally traded goods, in comparison to domestically traded goods, such as haircuts.
What is the Big Mac index?
A test of PPP, using the price of a Big Mac in different countries to test exchange rates and measure the PPP between countries.
What are the limitations of GDP (3)?
1) Does not account for quality of goods, only value.
2) Does not account for the ‘underground economy’ - transactions in cash which are not registered.
3) Non-market production (goods that are produced but not traded) are not accounted for.
What are the limitations of PPP (4)?
1) Does not account for the relative quality of goods between nations.
2) The items within the ‘basket of goods’ are disputed.
3) Basket is needs annual updating.
4) The quality of economic data and the systems used to gather data varies between nations.
