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Economics A Level Macro > Growth and uses of national income notes > Flashcards

Growth and uses of national income notes Flashcards

1
Q

What is Short-Run Growth?

A

-The actual annual percentage change in real national output.

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2
Q

What is Long-run Growth?

A

-An increase in the potential productive capacity of the economy.

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3
Q

What is Real GDP?

A
  • The value of goods an services produced in the economy over a period of time that also takes inflation into account.
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4
Q

What is GDP?

A

-The value of goods an services produced in the economy over a period of time.

-This is a key measure of the health of an economy.

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5
Q

What is National Expenditure?

A

-Consumption + investment + government spending + net exports.

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6
Q

What is the National Income?

A

-Adding up all an economy’s incomes (wages, interest, profits and rent.

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7
Q

What is the National Output?

A

-The value of output from each of the main economic sectors.

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8
Q

What is the relationship between National Income, National Expenditure, National Output?

A

-National Income = National Expenditure = National Output.

-One person’s expenditure is another’s income.

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9
Q

What are the four main economic sectors to measure the value of Output?

A

-Primary

-Secondary

-Manufacturing

-Quarternary

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10
Q

What is a nominal value?

A
  • A value expressed in monetary terms.
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11
Q

What is Real value?

A

-Adjusted for inflation by judging figures against a base year.

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12
Q

How do you convert from nominal to real terms?

A

-Real value= index of comparison period (usually base year) divided by index of current period.

-This should then be multiplied by the nominal value.

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13
Q

What is the total national income?

A

-The value of all goods and services produced in a country.

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14
Q

What is the Per capita income?

A

-Total income divided by the number of people in the country. (i.e: total GDP per person).

-This is a better indicator as it is not skewed by population.

-Used to compare standards of living across countries.

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15
Q

What is the volume of GDP?

A

-The quantity of goods and services produced in a country.

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16
Q

What is the value of GDP?

A

-The monetary worth of the goods and services produced in a country.

17
Q

What is the GNI?

A

-The Gross National Income of a country is its total level of income - GDP plus net income from abroad. For example: interest and dividends.

18
Q

What are the three objectives required to compare countries as accurately as possible?

A

-Inflation (real GDP)

-Population (real GDP per capita)

-Costs of living/exchange rates (purchasing power parity)

19
Q

What is PPP?

A
  • Purchasing Power Parity, the alternative to using market exchange rates.

-The actually purchasing power of any currency is the quantity of that currency required to buy a basket of common goods or services in that country.

20
Q

How is the PPP determined in each country?

A
  • It is based on its relative cost of living and inflation rates.

-Ultimately PPP is the equation of purchasing power of two currencies by accounting for differences in inflation rates and cost of living in each country.

21
Q

How often does the World Bank construct and release a report that compares various countries in terms of PPPs and US Dollars?

A

-Every three years.

-These reports typically reveal when PPPs are used and the gap that exists between wealthy countries and poverty-stricken nations.

22
Q

What are the advantages of PPPs

A
  • Unaffected from speculation, which changes the exchange value of goods in a country.

-Using an identical basket of goods to compare countries allows us to compare on a like-for-like basis.

23
Q

What are the disadvantages of PPP?

A
  • The exchange rate is mostly determined by such speculative investment, these often move the real exchange rate away from the PPP value.

-It is complex to compare an identical basket of goods in different countries, which have different labour, costs, tastes.

24
Q

What are the limitations of GDP?

A
  • Accuracy of statistics.
  • Ignores work without a monetary value.
  • Does not consider negative externalities.
  • Does not show inequality in distribution.
  • No account of innovation, quality, changes in working conditions.
25
Q

What is Happiness Economics?

A
  • Looks at how content individuals are with their life from a theoretical and scientific viewpoint.
26
Q

What six factors affect happiness according to the UN?

A

-Real GDP per capita
-Healthy life expectancy
-Having someone to count on
-Perceived freedom to make life choices
-Freedom from corruption
-Generosity

27
Q

What is Human Development Index?

A
  • An average and expected years of schooling.
  • A long and healthy life.

-Standard of living: GNP AT PPP.

28
Q

What are the Pros of Human Development Index?

A
  • A composite index that captures three aspects of living standards.

-Education and health valuable assets.

-Highlights countries with same GNI but different levels of economic development.

-UN records for all countries, so easy to access and reliable source.

29
Q

What are the cons of the Human Development Index?

A

-Regional variations within countries.

-Reflects long-term rather than short-term changes.

-Using GNI captures same of the same faults as using GDP.

-Other factors not captured. For example: war, pollution, etc.

30
Q

What is Human Poverty Index?

A

-Composite index: Longevity, knowledge, and decent living standard.

-Developing countries: probability at birth of dying before 40, adult literacy rate and percentage with access to improved water source + % of children underweight for their age.

-Developed countries: probability at birth of dying before 60, percentage of adults lacking function literacy skills and percentage of population living below 50 percent of median household disposable income + social exclusion as indicated by the long-term unemployment rate.

31
Q

What are the Pros of the Human Poverty Index?

A

-A composite index that captures three aspects of living standards.

-Education and health valuable assets.

32
Q

What are the Cons of Human Poverty Index?

A

-No measure of wealth/incomes included.

-Classification of countries into developed and developing.

-Moral debates about the ethic of having different benchmarks for poverty.

33
Q

What is Green GDP?

A

-GDP is adjusted to take into account environmental degradation and resources depletion.

34
Q

What are the Pros of Green GDP?

A

-Captures whether economic growth is sustainable or at the expense of depleting resources and therefore won’t be possible to continue into the future.

35
Q

What are the Cons of Green GDP?

A

-It way be unfair to expect low income countries to grow sustainable in the early stages of development.

-There is not universal agreement on the correct level of environmental harm.

36
Q

What is the UN Happiness Index?

A

-The main ranking is based on answers from a representative sample from each nation which asks participants to rank their own current lives on a scale from 0 to 10 where 0 is the worst possible life and 10 is the best possible life.

-The UN then tries to explain these rankings to show the estimated extent to which each of 6 factors- GDP, life expectancy, generosity, social support, freedom and corruption.

37
Q

What are the Pros of the United Nations Happiness Index?

A

-Directly captures living standard by asking people to rank their own living standard.

-Attempts to explain livings standard against 6 different standards.

38
Q

What are the cons of the United Nations Happiness Index?

A

-People’s ranking systems are not necessarily identical.

-Normative judgement regarding which 6 factors cause living standards to change.

39
Q

What is the real household disposable income?

A

-The sum of final household consumption expenditure and savings. Wages and salaries are an example of disposable income.

Economics A Level Macro (15 decks)

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