Economic Growth Flashcards
How does a society improve the well-being of its citizens?
In economic terms, this means that the resources available within the economy need to expand through time in order to widen people’s choices. This requires economic growth: an increase in the productive capacity of the economy
What is potential economic growth?
Potential economic growth is the expansion of the productive capacity/output of an economy
How does the PPF show economic growth?
Economic growth is characterised as an outward movement of the production possibility frontiers. This is because the society produces more goods and services enabled by the improvement of the factors of production
What does GDP represent as a measure of the economy?
The total output of an economy during a period of time
How is GDP measured?
Total value added produced by firms in the domestic economy
Total expenditures added up
Total income earned added up
How does GNI differ from GDP?
Gross national income takes into account these income flows between countries. This is the standard measure used by the World Bank
How is actual economic growth measured?
Percentage rate of growth of GDP (or GNI)
How does potential economic growth differ from actual economic growth?
In potential economic growth, the economy operates at full capacity where as actual economic growth may occur in an economy that is not always operating at full capacity
Why is it difficult to determine an underlying trend?
The year-to-year movements are very volatile
What is standard of living?
Standard of living is the goods and services available to you that you can afford
Why is GNI preferred to GDP when quantifying standard of living?
GNI is preferred over GDP as it more closely reflects the incomes of the residents
This would be important to countries like Pakistan where there are relatively large inflows of income from people working abroad
What other reasons is GNI preferred over GDP?
It is relatively straightforward and widely understood
It is a well-established indicator and available for almost every country in the world so can be used for comparison
How is GNI adapted to be comparable between countries?
Different countries have differently sized populations, so GNI per capita is used to compare
