Measures Of Economic Performance Flashcards
What does GDP stand for
Gross domestic product
What is gross domestic product (GDP)
GDP is the total market value of the goods and services produced in a country in a year. It is given as a value of production, in the local currency. On its own it is almost meaningless: we need to know how many people there are, what currency is worth in terms of its spending power in the local economy and what the changes have been to the previous measure.
What are the things we need to know about GDP as well as just the value for it to be useful
GDP on its own its almost meaningless, we need to know how many people there are, what the currency is worth in terms of its spending power in the local economy and what the changes have been since the previous measure.
Define production
Production is the value of goods and services produced in a given period of time
What are the two meanings of economic growth
Economic growth can mean actual economic growth and potential economic growth
What is actual economic growth
Actual economic growth is an increase in real incomes or real gross domestic product (GDP)
What is potential economic growth
Potential economic growth is an increase in the productive capacity in a country. This could be caused by an increase in the labour supply, an increase in investment or an increase in productivity.
Although it is a useful measure, potential economic growth is hard to record accurately.
What can potential economic growth be used to show
It can be used to show how an economy is performing relative to its output capacity. Differences between the two are known as the output gap.
What’s the output gap simply
The difference between how an economy is performing relative to its output capacity.
Define productivity
This is usually measured as the output per worker per hour worked
What is GDP the sum of
GDP is the sum of all goods and services produced in a country in a year
It is also the sum of all incomes earned in a country in a year
also it is the sum of all expenditure in a year.
GDP does not include earnings by its residents while outside the country. Consider it as a circular flow of income where for everything that is earned, something must be produced and something must be spent. The government measures all three flows - output, income and expenditure - which should in theory amount to the SAME figure !
However in practice, errors and omissions mean that there are some discrepancies between these three measures of GDP
Increases in GDP signals ….
Increases in GDP are a sign that a country is experiencing increasing incomes, output and spending. On the face of it, this is a good thing because people can have more goods and services, implying that they have a higher standard of living.
However there are many reasons why this may not be the case. If someone earns more, it may be that they work longer hours and have more work pressures, or that they have a higher cost of living such as increased mortgage payments. Pollution is likely to increase as they travel greater distances and there a whole range of external costs that may be incurred
What is actual economic growth
The rate of GDP increase in real terms is known as actual economic growth. It means more spending, higher incomes and higher output in the economy.
if economic growth is measured using GDP, What is GDP useful for when it’s a nominal value
MEANINGLESS
🤭😫😫😫😫
The value is meaningless unless the figures are given in real values, rather than nominal values.
What are real values
Real values have been adjusted to remove the effects of inflation
What are nominal values
Nominal values are the current incomes that are unadjusted for changes in average prices.
Define real values
Values that have been adjusted to remove the effects of inflation. The effects are removed using an index number that represents the changes in prices and the results are called ‘constant values’
Define nominal values
Values that are measured in money terms. Nominal figures are unadjusted ‘current values’
What do we also call real values
Constant values
What do we also call nominal values
Current values
For GDP to have any significance in terms of standards of living, figures must be calculated….
Per capita (per head)
Eg if a country’s income increases 10% but the population increases 20%, people would, on average, be worse off per head.
Tell me distinction between ‘total’ and ‘per capita’ measures
Total is the total GDP or a total value for something in a country/economy
Per capita is per head or per person
Tell me the distinction between ‘value’ and ‘volume’ measures
Another important distinction required when measuring economic growth is to look at values rather than volumes. Firms might achieve higher sales figures because they sell more in volume or number of products, but if those sales are worth less per unit then they are not seeing an increase in the value of their output.
As an example, consider Germany and China. Germany is the biggest exporter in the world by value, whereas China exports much more in terms of volume of goods.
If inflation is 2% and your nominal wages have risen by 2% have your real wages increased
No 📉 they stayed the same