Economic Performance Flashcards
What is Economic Growth?
Economic growth: increase in the potential output of an economy or in the real value of goods & services produced, measured by the %
change in real GDP.
What is GDP?
Gross domestic product (GDP): measures the value of real output of
the economy over a period of time; a rise in GDP indicates economic
growth
What is Nominal GDP?
Nominal GDP: the monetary value of all goods and services produced
in the economy (GDP at current prices)
What is Real GDP?
Real GDP: the nominal value of GDP adjusted for inflation (GDP at
constant prices)
What is Real GDP per capita?
Real GDP per capita: national income per person often used a proxy
measure for the standard of living
What is Value v volume?
Value v volume: the value of goods and services shows what they are
worth; the volume shows the number that are produced.
What are some national income measures?
GDP: Value of national output produced in an economy
Gross National Product (GNP): GDP + net property income from abroad
Gross National Income (GNI): similar to GNP = final value of income
flowing to a country’s owned factors of production in a given year
GNI = Gross Domestic Product + net income from abroad of compensation of employees and property income.
GNI could be higher than GDP if there is:
• income from worker remittances,
• income from interest on bonds and savings held overseas
• income from dividends on profits from overseas investment
• overseas aid transfers (inflows) for poorer countries.
(NB: GNI can be lower than GDP if these flows are reversed)
What is the Purchasing Power Parity?
Purchasing power parity (PPP) is used when assessing relative living
standards between countries. Real GDP needs to be converted into same currency for comparison, but the market exchange rate does not reflect differences in the cost of living/purchasing power of income in the countries.
PPP is calculated by comparing the price of a basket of comparable goods and services in different countries/ PPP measures the total amount of goods and services that a single unit of a country’s currency can buy in another country.
Define standard of living
Standard of living – a measure of economic welfare and wellbeing
While more income typically increases the standard of living the relationship is not exact.
How do we measure standard of living?
Economists use real GDP per capita as a proxy/rough guide for the standard of living
Real – takes inflation into account
Per capita – takes population change into account
How do we calculate HDI? (Human development index)
• Health – life expectancy at birth
• Education – mean years of schooling and expected years of
schooling
• Living standards – GNI per capita
