Purchasing Power Parities (PPPs)

Question 1

What is PPP?

Answer 1

Purchasing power parity

Question 2

What does PPP tell you?

Answer 2

Amount currency 💴 buys in local economy

Question 3

How is PPP used to compare GDP levels between countries?

Answer 3

GDP comparison- specific exchange rate used so currency 💴 would buy same basket of 🚘 in 🇺🇸 … international comparisons ⬆️ helpful

Question 4

What things should be considered when evaluating growth figures?

Answer 4

1) Initial wealth 💰 of nation
2) Self consumed output (✖️ appears GDP)
3) Relative exchange rates (PPPs)
4) Type of government spending e.g. on warfare 🔫 or education 📚 & healthcare 🏥

Question 5

What are the negatives of using GDP to compare living standards between nations & over time?

Answer 5

1) GDP (national income)✖️ reflect true living standards- if barter used (🚘 for 🚘-✖️ price system), if tax ✖️ declared on bought 🚘 or if farmers consume own output 🌽
2) Informal economy- output that is ✖️ recorded BUT still output e.g. homegrown potatoes 🥔
3) Income 💵 distribution- large proportion of 💵 earned by few- average income & … average living standards ⬇️- SOLUTION- real income growth per capita
4) Quality- spending ✖️ reflect quality of what is produced e.g. quality of education 📚

Question 6

What is national happiness?

Answer 6

Alternative to GDP (material goods) OR to use alongside- measures quality of life

Question 7

What is GNH?

Answer 7

Gross National Happiness 😊 (GNH)- psychological well-being- quality of life BUT ✖️ widely used

Question 8

What is the Easterlin paradox?

Answer 8

Easterlin paradox- as incomes ⬆️, 😊 ⬆️ BUT only up to a point- after 😊 ⬇️

Question 9

What does the easterlin paradox therefore argue that government policy should entail?

Answer 9

… argued that government policy should aim to ⬇️ income 💵 inequality & external costs as well as economic growth