Economic Growth [2.1.1]

Question 1

What is GDP?

Answer 1

GDP is the market value of all final goods and services produced domestically in a time period.

Question 2

What is Market value?

Answer 2

Value price paid by consumers.

Question 3

What are final goods?

Answer 3

GDP does not count value of raw materials only finished goods.

Question 4

What is the time period for GDP?

Answer 4

A year or on a quarterly basis (3 months)

Question 5

What are the 3 ways to measure GDP?

Answer 5

Output measure: value of goods and services produced by sectors of the economy e.g manufacturing.

Expenditure measure: Value of goods and services purchased by households and the government investments by firms in machinery and building includes exports - imports

Income measure: Value of the income generated mostly in terms of profits and wages.

Question 6

What is GDP used for?

Answer 6

Principle means for determining the health of the UK economy used by Bank of England for Monetary policy, key indicators for setting interest rates.

GDP is used for planning economic policy when an economy is contracting tax receipts fall gov adjusts to spend accordingly

Question 7

What is the formula for GDP?

Answer 7

GDP (AD) = C + I + G + (X-M)

Question 8

What do the letters stand for in GDP?

Answer 8

C - consumption of goods and services consumers buy
I - Investment by firms on capital and machinery
G - government spending on public goods and services
X -M Exports - imports money leaving the country vs coming in

Question 9

What is Gross National Income?

Answer 9

Added what the country earns through investment overseas subtracts what foreigners earn in the home country and sent back home.

Question 10

What is scarcity?

Answer 10

Scare resource of alternate uses limited and finite choices about how to use these resources.

Question 11

What is Econometrics?

Answer 11

use of statistical methods to develop theories or test existing hypotheses in economics or finance.

Question 12

What is the difference between micro and macro economics?

Answer 12

Micro - Behaviour of individual agents and markets

Macro - Study of the entire economy as a whole in a country

Question 13

What is the difference between positive and normative economics

Answer 13

Positive - objective can be tested
Normative - Subjective based of value or judgment

Question 14

What are the key objectives of the UK economic performance?

Answer 14

Low inflation/price stability
Growth of real GDP
Falling unemployment / Raising employment
Higher average standards of living
Improved balance of trade position
Fair distribution of income and wealth.

Question 15

What is the circular flow of income?

Answer 15

Shows how money flows between the different components in an economy.

Spending > Production > income

Question 16

What are the 4 parts of circular flow of income?

Answer 16

Households - Receive income will consume or save
Firms - meet the demands of consumers through output, pay wages , make investments
Government - Collect taxes from households and firms then spent
External sector - Buys imports from abroad and sell UK products abroad

Question 17

Model for the circular flow of income?

Answer 17

Question 18

What are Leakages in the economy?

Answer 18

Savings
Taxation
Imports

Question 19

What are injections in the economy?

Answer 19

Investment
Govt spending
Exports

Question 20

What is GDP per capita?

Answer 20

Used to estimate the living standards for people in a country

GDP / Total population

Question 21

What is nominal GDP?

Answer 21

Figure given for GDP without taking inflation into account.

Question 22

What is Real GDP?

Answer 22

Measures of a country’s GD[ adjusted for inflation.

Question 23

What is PPP?

Answer 23

Purchasing power parity - exchange rate is the rate at which the currency pf one country would have to be converted into that of another country’s to buy the same amount of goods and services

Question 24

How useful is GDP to measure living standards?

Answer 24

GDP has a positive correlation with life expectancy and happiness.
As GDP per capita increases so does human development
As average per capita increases so does income of the poor
It is good for comparing same countries at different time periods

Question 25

What is the problem with using GDP as a measure for standards of living

Answer 25

It does however miss distribution of income
Does not take into account harm to the environment or goods not sold for a price.
Welfare of nation cannot be determined by GDP
Natrual disastor clean ups contribute to GDP
Does not account for quality of life or eduction

Question 26

What are the 6 limitations of GDP?

Answer 26

The black market
Non Market activities
Environmental factors
Happiness and Well being
Sustainability of Growth
The Balance of GDP

Question 27

How is the role of the black market and the informal sector a limitation of GDP?

Answer 27

Not accounting the black market into GDP reduces the value of GDP.
It doesn’t take into account the output of the workers
Reduces the tax collected

Question 28

How is non market activities a limitation of GDP?

Answer 28

GDP only counts goods passing through organized market where there a price involved this misses home production like:
Volunteering
Growing food

Question 29

How is environmental factors a limitation of GDP?

Answer 29

GDP doesn’t recognise environmental costs like pollution congestion and global warming.
GDP is not adjusted for pollution costs

Question 30

How is Happiness and Well - Being a limitation of GDP?

Answer 30

GDP does not adjust for happiness.
GDP doesn’t take into account how hard people work and their output impact on family life.

Question 31

How is Sustainability of Growth a limitation of GDP?

Answer 31

GDP doesn’t measure the sustainability of growth.
Countries may achieve high GDP temporarily by over - exploiting natural resources or by misallocating resources.
Faster economic growth may improve living standards but lead to over-exploitation of scarce resources.

Question 32

How is the Balance of GDP a limitation of GDP?

Answer 32

Spending composition can be different some countries may invest a lot of money on arms and infrastructure while others focus on health

Question 33

What are other ways to measure wellbeing?

Answer 33

SEDA -