Economic growth Flashcards
What is economic growth?
The percentage increase of GDP over a period of time
What is the difference between real GDP and nominal GDP?
Real GDP measures are adjusted for inflation, whereas nominal GDP values aren’t adjusted for inflation
What is GDP?
GDP measures the final goods and services produced in an economy
What is the equation for GDP? (And the percentage that each factor makes up of the GDP)
AD = C + I + G + (X-M)
AD = Aggregate demand/GDP
C = Consumption (60%)
I = Investment (15%)
G = Government expenditure (25%)
X = Exports
M = Imports
What is the equation for converting from nominal to real GDP?
Real GDP = Nominal GDP/1 + inflation rate
What is the GDP deflator equation?
GDP deflator = (Nominal GDP/Real GDP) x100
What is GNI?
Gross national income - It accounts for the country’s GDP and NFIA (Net Factor Income from Abroad) which is factor payments from abroad-factor payments to abroad
What is GDP per capita?
Means GDP per head, so GDP per person. Equation is GDP per capita = GDP/Population
What is purchasing power parity?
A measure of the price of specific goods in different countries and is used to measure the absolute purchasing power of the countries’ currencies.
What are the disadvantages of PPP?
Quality differences: The quality of some goods in some countries will be lower than others, PPP doesn’t account for this.
Geographical differences: Some goods could be more expensive in some countries simply because of the transport costs involved.
Other price differences: The difference in the price of goods can be distorted by tariffs and taxes.
What are the reasons why GDP ignores other well-being factors?
These measures are subjective and not objective, meaning they can’t be directly measured
What are the reasons that GDP is not a good measure of standards of living? (Excluding PPP and well-being factors)
Income inequality - GDP per capita is an average with no idea of spread, 10% of the population could have 90% of the income.
Goods improve in quality - GDP doesn’t account for improvements in quality and diversity of goods, for example a phone 10 years ago would’ve had fewer functions than one now, but would have been the same price.
Quality of data - Poorer countries will struggle to spend as much money on collection of this data as richer countries
Shadow markets - GDP does not factor in black markets, where money is spent but not officially recorded as being so.
Unpaid work - Some workers volunteer or do not get paid, so their work is not reflected in the GDP.
What is the relationship between real income and happiness?
Generally, higher income means there is a higher quantity and quality of goods and services available in an economy, which improves living standards, which should increase happiness.
What is the Easterlin Paradox?
Decades of growth in developed nations was not translating into higher reported average well-being measures, which is because if the average GDP of a country rises, your income will rise, but so will everyone else’s in that country, meaning you aren’t relatively better off than everyone else.
