Economic Growth (Up Learn) Flashcards
How does an economy grow?
Produce more output
Real GDP
Measured by adding just the quantity, no price tags. What is really being produced.
Nominal GDP
Measured by adding all the prices.
How could Nominal GDP go up but real GDP doesn’t?
The price are going up due to inflation. When Nominal GDP rises we don’t know if it is due to quantity increasing or prices increasing.
Economic Growth
Increase in Real GDP (not fooled by Nominal GDP)
Equation
Real GDP Growth = Nominal GDP Growth- Inflation. Removing effects of inflation makes us only left with just increase in output i.e. increase in Real GDP.
Why can Real GDP be misleading?
Because we aren’t considering the size of population. The real GDP could be low but real GDP per capita/person could be high.
GDP
Gross Domestic Product. What is produced in your own country, not abroad.
GNI
Gross National Income. GNI = GDP + Net Income from abroad (net income could be payments as gifts from family abroad or sending remittances abroad to your families)
How could a country be poorer (lower GNI) than what their GDP reveals?
Lots of income could be sent abroad.
Income equals what?
Income = Output = Expenditure
GNI equals what?
Gross National Output (stuff we make or produce)= Gross National Product
Net Income is calculated by?
Remittances in minus remittances out
Marginal Definition
One extra unit
Easterlin Paradox
As income increases, happiness increases up to a point as people are able to afford important items like food. However the marginal happiness from each extra £ of income decreases as people spend money on less important things = less happiness.
How is happiness measured?
National Well Being Survey by ONS. Could be inaccurate as it is based on opinion: normative statements.
More Economic Growth Means?
More goods and services delivered to the population
What does Gross National Happiness measure?
Spiritual, Physical, Environmental and Social well being of the citizens.
Difficulties of using GDP to compare countries
Nominal GDP is measured in different currencies so it is hard to compare as exchange rates are volatile and change all the time, making them unreliable. Also, we don’t know how much a certain amount is worth in a certain country. Therefore we use PPP.
What does PPP tell us?
How much of 1 currency is needed to buy a basket of commonly bought goods of both countries compared to another currency. So in Grenada and Sri Lanka, fish and cycles are bought the most. In Grenada it costs $1 whereas in Sri Lanka it costs 26 rupees. Therefore $1=26 rupees. So now you can compare nominal GDP.
Limitations of Using GDP to compare living standards
Population Changes, Income Distribution, Types of goods and services, Underground economies, Subsistence economies
Population Changes
If population is growing faster than real GDP, then real GDP per capita would be decreasing and vice versa.
Income Distribution
Real GDP looks at how rich the country is overall but not how equally distributed the income is. Rich people got richer but the poor people stayed the same.
Types of Goods and Services
Real GDP rises but living standards fell because they spend money on the wrong type of goods. Eg: if they are spending lots of money on tanks then people might die so their living standards would fall. Negative externalities is the result of consuming something bad; costs that affect others.
