PMT measures of economic performance Flashcards
What is economic growth
The rate of change of output
How is economic growth typically measured
real GDP per year
Can also be shown through the shift of PPF
What is GDP (gross domestic product)
Total value of goods and services produced in a country within a year
What is the difference between total GDP and GDP per capita
total GDP = overall GDP for a country
GDP per capita = GDP per person
What is the difference between real GDP and nominal GDP
real GDP = strips out the effects of inflation
Nominal GDP = does not allow for inflation
What is GNI (gross national income)
the value of goods and services produced by a country over a period of time plus net overseas interest payments and dividends
What is GNP (gross national product)
The value of goods and services over a period of time through labour or property supplied by citizens of a country both domestically and overseas
How can we make comparisons about growth over time
changing national income levels will show us whether the country has grown or shrunk over a period of time
How can we make comparisons about growth between countries
When countries have a difference in population, a difference in total GDP doesn’t mean a difference in living standards
What are purchasing power parities
an exchange rate of one currency for another which compares how much a typical basket of goods in the country costs compared to one in another country
What are some problems of using GDP to compare standards of living
-inaccuracy of data
-inequalities
-quality of goods and services
-comparing different currencies
-spending
-education
What are the 6 key factor affecting UN happiness
-real GDP per capita
-health
-life expectancy
-having someone to count on
-perceived freedom to make life choices and freedom from corruption
-generosity
What link does real incomes have to subjective happiness
happiness and income are positively related at low incomes
E.g. if you are poor and your income increases, you will be happier
BUT high levels of income aren’t associated with increases of happiness
E.g. rich people aren’t necessarily happy and increases in income wont make them happier
What does “easterlin paradox” refer to
an increase in consumption of material goods will increase happiness if basic need aren’t met, but once these needs are met, an increase in consumption wont increase long term happiness
What is inflation
The general rise in prices in the economy
What does inflation do
Erodes purchasing power of money
What is deflation
the fall in prices and indicates a slow down in the rate of growth
What is disinflation
a reduction in the rate of inflation
(Prices are still rising, but at a slower rate)
What is CPI (consumer price index)
Measures changes in the price of goods and services purchased by households
What are some limitations of CPI
-impossible to take into account every single good that is sold -> not totally representative
-does not include the price of housing
-difficult to make comparisons
What is RPI (retail price index)
Measure of inflation that includes:
-housing costs
-takes into account that when prices rise people will switch product
-excludes top 4% of income earners and low incomes pensioners
What are the causes of inflation
-demand pull
-cost push
-growth of money supply
What is demand pull inflation
where aggregate demand increases total demand for goods and services in the economy
What is cost push inflation
Where business costs have risen so prices are put up to maintain the company’s profit margins
