Growth and uses of national income notes Flashcards
What is Short-Run Growth?
-The actual annual percentage change in real national output.
What is Long-run Growth?
-An increase in the potential productive capacity of the economy.
What is Real GDP?
- The value of goods an services produced in the economy over a period of time that also takes inflation into account.
What is GDP?
-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.
What is National Expenditure?
-Consumption + investment + government spending + net exports.
What is the National Income?
-Adding up all an economy’s incomes (wages, interest, profits and rent.
What is the National Output?
-The value of output from each of the main economic sectors.
What is the relationship between National Income, National Expenditure, National Output?
-National Income = National Expenditure = National Output.
-One person’s expenditure is another’s income.
What are the four main economic sectors to measure the value of Output?
-Primary
-Secondary
-Manufacturing
-Quarternary
What is a nominal value?
- A value expressed in monetary terms.
What is Real value?
-Adjusted for inflation by judging figures against a base year.
How do you convert from nominal to real terms?
-Real value= index of comparison period (usually base year) divided by index of current period.
-This should then be multiplied by the nominal value.
What is the total national income?
-The value of all goods and services produced in a country.
What is the Per capita income?
-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.
What is the volume of GDP?
-The quantity of goods and services produced in a country.
What is the value of GDP?
-The monetary worth of the goods and services produced in a country.
What is the GNI?
-The Gross National Income of a country is its total level of income - GDP plus net income from abroad. For example: interest and dividends.
What are the three objectives required to compare countries as accurately as possible?
-Inflation (real GDP)
-Population (real GDP per capita)
-Costs of living/exchange rates (purchasing power parity)
What is PPP?
- 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.
How is the PPP determined in each country?
- 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.
How often does the World Bank construct and release a report that compares various countries in terms of PPPs and US Dollars?
-Every three years.
-These reports typically reveal when PPPs are used and the gap that exists between wealthy countries and poverty-stricken nations.
What are the advantages of PPPs
- 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.
What are the disadvantages of PPP?
- 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.
What are the limitations of GDP?
- 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.
What is Happiness Economics?
- Looks at how content individuals are with their life from a theoretical and scientific viewpoint.
What six factors affect happiness according to the UN?
-Real GDP per capita
-Healthy life expectancy
-Having someone to count on
-Perceived freedom to make life choices
-Freedom from corruption
-Generosity
What is Human Development Index?
- An average and expected years of schooling.
- A long and healthy life.
-Standard of living: GNP AT PPP.
What are the Pros of Human Development Index?
- 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.
What are the cons of the Human Development Index?
-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.
What is Human Poverty Index?
-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.
What are the Pros of the Human Poverty Index?
-A composite index that captures three aspects of living standards.
-Education and health valuable assets.
What are the Cons of Human Poverty Index?
-No measure of wealth/incomes included.
-Classification of countries into developed and developing.
-Moral debates about the ethic of having different benchmarks for poverty.
What is Green GDP?
-GDP is adjusted to take into account environmental degradation and resources depletion.
What are the Pros of Green GDP?
-Captures whether economic growth is sustainable or at the expense of depleting resources and therefore won’t be possible to continue into the future.
What are the Cons of Green GDP?
-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.
What is the UN Happiness Index?
-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.
What are the Pros of the United Nations Happiness Index?
-Directly captures living standard by asking people to rank their own living standard.
-Attempts to explain livings standard against 6 different standards.
What are the cons of the United Nations Happiness Index?
-People’s ranking systems are not necessarily identical.
-Normative judgement regarding which 6 factors cause living standards to change.
What is the real household disposable income?
-The sum of final household consumption expenditure and savings. Wages and salaries are an example of disposable income.
