Economic Growth 2.1 Flashcards
GDP def.
The total value of all goods and services produced within an economy in a given period of time
Real GDP
We should always compare year-on-year GDP using real GDP rather than nominal GDP so we can adjust for inflation
Benefits of Economic Growth
6
Higher living standards due to -
- Better housing
- Education
- Healthcare
- Life expectancy
- State benefits
- Nutrition
Cons of Economic Growth
3
Depletion of non-renewable energy sources (oil & gas). Richer countries can now invest in renewable sources
Environmental degradation (pollution etc.). Richer countries can invest in cleaner tech, yet poor countries can allow firms to expanded into their country in return for better employment & wages in a ‘dash for growth’
Increased inequality. Newly industrialised countries such as China & India have seen increases in the equality gap as the growth has not been shared equally (73% of the wealth generated in India in 2017 went to the top 1%, whilst the bottom 50% earners only received 1%). Until recently this has not occurred as much in richer countries due to powerful trade unions and an educated workforce which drives up wages, however, globalisation has led to inequality to increase as workers compete with lower-paid workers in foreign countries (countries outsource factory work). New tech could also cause more jobs to be lost due to automation
Impact of economic growth for consumers
Positive as goods are produced to higher quality more efficiently, making them cheaper.
However, Easterlin Paradox suggests that an increase in consumer goods only makes us happier to a certain point, once this point is reached there is no difference
Impact of economic growth for business
Higher sales, thus more profit. However may not be spread equally across the industry, new technologies can place power into certain extremely large firms such as Amazon & Google (They may be only ones who can afford it, or they invented it due to high R&D Spending)
Benefits of economic growth for governments
Generally positive as more tax revenue raised as the population’s average income increases. However, people expect public services to improve as a result of this, yet don’t want to pay more taxes.
The ageing population that comes with an increase in living standards is also an issue, as the cost of pensions and social care can rise.
Gross National Income Def.
Value of G&S produced in an economy plus net overseas interest payments and dividends
Purchasing Power Parities Def.
Compares how much a typical basket of goods in one country compares to one in another country
Issues with Using GDP to compare standard of living
Shadow economies (black market) which are not taken into account e.g. estimated to be 19.8% of GDP in Italy
GDP doesn’t take into account home-produced services e.g. when people work as subsistence farmers where they grow and consume their own crops without trading. Very common in poorer countries
Increase in GDP may just affect high incomes rather than others e.g. in India 2017 73% of income generated went to top 1%
