Economic Growth

Question 1

What is Gross Domestic Product?

Answer 1

the total value of goods produced and services provided in a country during one year

Question 2

Explain the difference between Real and Nominal GDP

Answer 2

Real GDP is often favored over nominal GDP as it accounts for the effects of inflation because it’s adjusted fo inflation

Question 3

Explain the difference between total and per capita GDP

Answer 3

• GDP per capita of a country is calculated by dividing total GDP of the country by its total population.
• GDP is the aggregate goods and services produced and sold within a country during a specific time period

Question 4

Explain the difference between GNP and GNI

Answer 4

• GNI is the total income received by the country from its residents and businesses regardless of whether they are located in the country or abroad
• GNP includes the income of all of a country’s residents and businesses whether it flows back to the country or is spent abroad

Question 5

Why must we be careful when comparing GDP across different countries?

Answer 5

may give misleading figures as you have to exchange with the common currency, however it may not be accurate for countries with small international trade

Question 6

Why must we be careful when comparing GDP over time?

Answer 6

GDP leaves out some production in an economy

Question 7

What is meant by ‘Purchasing Power Parity’?

Answer 7

an economic theory that suggests the prices of goods and services between two countries should be equal, once their currencies have been exchanged

Question 8

Why might PPP be useful?

Answer 8

PPP exchange rates are relatively stable over time