Macro: GDP-How to make comparisons between countries? Flashcards
What does GDP per capita adjusted for PPP tell us?
Tells us how far the income of a citizen will go in one country compared to another.
Why is GDP per capita adjusted for
PPP better than just GDP per capita?
-GDP per capita could be higher in one country than another this doesn’t tell us anything about PPP
-Hence we need to adjust GDP per capita using PPP exchange rate hence make a more meaningful comparison.
Define GNI
Gross National income is GDP plus net property income from overseas
What is a remittance money transfer?
a funds transfer from one bank account to another as a gift or payment.
Why are the remittance money transfers important?
-They are important/significant for lower and middle-income countries
-Countries with strong net inflows of remittances and other incomes will see GNI rise
What effect will strong foreign aid inflows have on GNI?
It will lift GNI
Give an example of a country wich has a high remittance income as % of GDP.
Tajikistan 47% of GDP is remmitance
Define NPIA
Net balance of interests, profits and dividends ( IPD) coming into the UK from coming into the UK from our assets owned overseas matched against the flow of profits and other income from foreign assets located within the UK.
Does GDP include income earned by:
-Residents in the country
-Foreigners in country
-Residents out of country
-Foreigners out of country
-Residents in the country: YES
-Foreigners in a country: YES
-Residents out of country: NO
-Foreigners out of country: NO
Does GNI include income earned by:
-Residents in the country
-Foreigners in country
-Residents out of country
-Foreigners out of country
-Residents in the country: YES
-Foreigners in country: YES if spent in country
-Residents out of country: YES if spent in country
-Foreigners out of country: NO
What is the diff between GDP & GNI?
GNI is a broader measure than GDP and considers income earned from overseas investments and remittances.
What does comparing growth rates tell us?
-Helps assess relative economic performance.
-Reveal disparities in development and highlight factors contributing to growth.
What can long term analysis of growth tell us
-Reveals economic patterns and trends.
-Identify periods of economic expansion, recession, or stagnation.
What is PPP?
-PPPs are exchange rates that equalize the purchasing power of different currencies for a common basket of goods.
-They account for price differences between countries and facilitate meaningful international comparisons.
What does PPP stand for?
Purchasing Power Parities
What is the formula for PPP?
PPP=Cost of good X in currency 1/ Cost of good X in currency 2
What are the limitations of Using GDP to Compare Living Standards
- Income Distribution: GDP per capita does not account for income inequality, and a high GDP may conceal disparities in living standards.
- Non-Market Activities: GDP excludes non-market activities like household labor and informal economies, leading to an incomplete picture of living standards.
- Quality of Life: GDP does not measure factors such as healthcare, education, environmental quality, and overall well-being.
What have some countries considered measuring as well as GDP?
National Wellbeing
How may National well-being be measured?
life satisfaction, mental health, and social connections.
What is the relationship between Real Incomes and Subjective Happiness?
Research suggests that while higher incomes are associated with increased happiness up to a point, the relationship between income and happiness diminishes beyond a certain income level.
What is and example of a real-life measure of happiness?
-World Happiness Report ranks countries based on factors like income, social support, life expectancy, freedom to make life choices, trust, and generosity.
-Scandinavia tends to rank highly
Quote Robert F.Kennedy on happiness and GDP
‘It [GDP] measures everything in short, except that which makes life worthwhile’
