Economic Growth Definitions

Question 1

GDP (4)

Answer 1

• This is a measure of the total monetary value of all the finished goods and services produced
• Within a country’s borders
• In a specific time period (usually a year)
• It can be calculated by adding up the value of all the expenditures, products or incomes in an economy

Question 2

Gross National Product (GNP) or Gross National Income (GNI) (3)

Answer 2

• This is the total value of all finished goods and services produced by a country’s citizens/firms in a given year
• Irrespective of their location
• GNP = GDP + Income earned by the residents from investments made overseas
• Minus income created by non-uk residents in the UK

Question 3

Nominal GDP (2)

Answer 3

• This is measured at current market prices
• Therefore, nomincal GDP will include all of the changes in market prices that have occured during thr current year due to inflation of deflation

Question 4

Real GDP (2)

Answer 4

• This is the value of economic output adjusted for price changes (for example inflation or deflation)
• It often referred to as ‘constant price’ or ‘inflation-corrected’ GDP

Question 5

GDP per Capita (2)

Answer 5

• This is the tota valur of output of the country divided by the population for the same year
• It provides the average income for a country

Question 6

GDP (PPP) (3)

Answer 6

• This compares countries GDP by using the cost of buying the same basket of goods in each country
• Then using this to convert the value into the same currency for comparison
• PPP considers the difference in the cost of local goods

Question 7

Economic Growth (2)

Answer 7

• True (potential) economic growth is the percentage increase in the potential maximum output of an economy in a given time period (usually a year)
• Difficulties in measuring potential output however means that economic growth is usually meaured as a percentage increase in GDP in a given year

Question 8

National Happiness (3)

Answer 8

• Gross National Happiness (GNH) is a global indicator of progres, which measures both sustainability in an economy and ocial development, while protecting the environment and culture
• In the UK, the ONS describes this as ‘how we are doing as individuals, as communities and as a nation, and how sustainable this is for the future’
• The measure include both objective data (for example number of crimes against a person per 1,000 adults) and subjective data (for example, percentage who felt safe walking alone after dark)

Question 9

Short-run economic growth on AD/AS diagram

Answer 9

• An increase in consumption, investment, government spending or net exports has caused a shift in AD from AD→AD1
• The current real output has increased from Y1→Y2, which represents an increase in real GDP
• An increase in real GDP = economic growth
• This short-run growth has led to an increase in average prices from AP1→AP2

Diagram analysis

Question 10

Short-run economic growth on Production Possibilities Frontier (PPF)

Answer 10

• An increase in production has caused a shift in production combinations from X→Y
• The current real output has increased, moving closer to the maximum possible output of the economy
• This represents an increase in real GDP
• An increase in real GDP = economic growth