Growth Flashcards
What does it mean if nominal GDP is increasing but real GDP has stayed the same?
inflation
(nominal GDP = prices, real GDP = quantity)
A decrease in nominal GDP could be caused by…
lower output
lower prices
Formula for real GDP growth %
nominal GDP growth % - inflation rate %
Why can looking at real GDP be misleading?
ignores size of country’s population - real GDP per capita can fix this
Formula for GNI
GNI = GDP + net income from abroad (usually remittances)
Easterlin Paradox
initially happiness increases as income increases, but only up to a certain point
^^ as income increases, marginal happiness decreases
What is GNI equal to?
Gross national output or ‘gross national product GNP’
ONS measuring happiness questions?
- how satisfied are you with your life nowadays
- to what extent do you feel things in life are worthwhile
- overall, how happy did you feel yesterday
- overall, how anxious did you feel yesterday
Why is the ONS’ way of measuring happiness not too accurate?
normative answers (they are subjective)
PPP
purchasing power parity
- find basket of goods/services that are commonly bought in both countries
- see how much two baskets would cost in each country
- ^^ how much of one currency is needed to purchase a basket of goods compared to another currency
Why are PPPs used?
- countries have different price levels
- exchange rates are volatile
Definition of PPP
how much of one currency is needed to purchase a basket of goods compared to another currency
Limitations of using GDP to measure living standards ?
- population changes
- income distribution
- types of goods produced (external costs (weapons))
- underground economy
- subsistence economy
Actual vs Potential growth
- potential growth = increase productive potential
^^ if economy in spare capacity but LRAS shifts right
