Growth

Question 1

Nominal GDP

Answer 1

The total price of all goods and services produced in an economy

Question 2

formula for real GDP growth

Answer 2

Real GDP growth = Nominal GDP growth - Inflation rate

Question 3

Which of the following shows the difference between nominal Gross Domestic Product (GDP) and real Gross Domestic Product (GDP)?

Answer 3

Nominal GDP may decrease because of lower output or lower prices

Question 4

calculate inflation rate:

Answer 4

[(New price index - Original price index)/Original price index] x 100

Question 5

calculate % change in nominal GDP:

Answer 5

[(New nominal GDP - Original nominal GDP)/Original nominal GDP] x 100

Question 6

GDP

Answer 6

gross domestic product. It is the amount that is produced in an economy in a year

Question 7

Real GDP per capita

Answer 7

The total output produced in an economy in a year divided by the population.

Question 8

Remittances

Answer 8

Money earned by workers which is sent home to family in another country.

Question 9

Gross National Income

Answer 9

Gross Domestic Product plus net income from abroad.

Question 10

GNI =

Answer 10

GNP

Question 11

Easterlin Paradox

Answer 11

As income increases, happiness increases up to a point as people are able to afford important items like food and a home. However, the marginal happiness from each extra £ of income falls as people spend money on things they don’t need and which bring less happiness.
Richard Easterlin argued that life satisfaction does rise with average incomes but only up to a point. Beyond that the marginal gain in happiness declines (there are diminishing returns)

Question 12

In the UK happiness is measured using

Answer 12

the Office for National Statistics (ONS) national well-being survey

Question 13

What describes a potential problem with measuring national happiness?

Answer 13

Happiness is subjective and measuring it requires normative questions

Question 14

What does Bhutan choose to measure instead of Gross Domestic Product?

Answer 14

Gross National Happiness.

Question 15

What are the two difficulties when comparing nominal GDP data between countries?

Answer 15

Nominal GDP data is usually measured in different currencies. This makes it particularly difficult to compare nominal GDP data as exchange rates are very volatile.

A second difficulty is that nominal GDP does not reflect differences between the price levels in each country. This makes it very difficult to compare as there is no way of knowing what each currency is worth in terms of the number of goods and services they will buy in each country.

Question 16

To avoid the problems outlined when comparing nominal GDP per capita, it is more helpful to use:

Answer 16

To avoid the problems outlined when comparing nominal GDP per capita, we can use Purchasing Power Parity. A PPP between two countries tells us how much of one currency is needed to purchase a basket of goods compared to another currency.

Question 17

Purchasing Power Parity

Answer 17

A purchasing power parity (PPP) between two countries tells us how much of one currency is needed to purchase a basket of goods compared to another currency.

Question 18

What are the five limitations of real GDP?

Answer 18

Population Changes
Income distribution
Type of goods and services
Underground economies
Subsistence economies

Question 19

Which is the best measure for making comparisons between economies?

Answer 19

To avoid the problems outlined when comparing nominal GDP per capita, we can use Purchasing Power Parity.

Question 20

Explain the impact on living standards of economic growth from mining and burning coal in Australia.

Answer 20

Living standards would decrease, drop, fall due to the impact of carbon emissions on the environment and pollution, which are negative externalities of growth.

Question 21

subsistence economy

Answer 21

The subsistence economy is made up of economic actors who consume, use goods that are produced by themselves . These goods are not measured by real GDP figures as there is no record, account of the goods.

Question 22

Explain how the existence of the subsistence economy limits GDP as a measure of living standards.

Answer 22

The subsistence economy is made up of people who produce goods to consume themselves rather than sell. This production is not recorded as the goods are not sold. This means real GDP does not measure any of the goods and services produced in the subsistence economy and so it underestimates the total amount produced.

Question 23

GDP Limitations

Answer 23

1, Real GDP does not reflect changes in the population and so it is better to use real GDP per capita.

2. Real GDP does not show how money is distributed and so it ignores income inequality.
3. Real GDP ignores the type of goods produced and living standards will be lower if there is significant production of goods with negative externalities.
4. Real GDP does not measure the underground economy and so it ignores illegal transactions.
5. Real GDP does not include the subsistence economy where people produce goods to consume themselves.

Question 24

Economic growth is when

Answer 24

Economic growth is when there is an increase in real GDP.

Question 25

An increase in SRAS is caused by

Answer 25

An increase in SRAS is caused by a decrease in the cost of production.

Question 26

An increase in LRAS is caused by

Answer 26

An increase in LRAS is caused by an increase in the quantity or productivity of the factors of production.

Question 27

Actual Economic Growth

Answer 27

An actual increase in real GDP.

Question 28

Potential Economic Growth

Answer 28

An increase in the full employment potential output level, shown by a right shift of the LRAS.

Question 29

How does the cap and trade system work?

Answer 29

Firstly, the government sets a cap on how much pollution it will allow each year - this is the estimated socially efficient level of pollution. It then divides up its permits between firms until the cap is reached.

Question 30

Which of the following shows why using purchasing power parity (PPP) can improve the accuracy of real Gross Domestic Product (GDP) when comparing the standard of living between two countries?

Answer 30

PPP removes the effect of different price levels from the real GDP measure