theme 2- 2.1 measures of economic performance

Question 1

what is economic growth?

Answer 1

a measure of an increase in real GDP -> actual economic growth

Question 2

what is GDP

Answer 2

total amount of goods and services produced in a country in one year
OR
total amount spent
OR
total amount earned

Question 3

what is potential economic growth

Answer 3

a measure of the increase in the productive capacity of the economy
can be shown by a movement outwards on the PPF curve

Question 4

what is a recession

Answer 4

when an economy has 2 consecutive quarters of negative economic growth
there is:
- less spending
- less income
- less output

Question 5

effects of a recession

Answer 5

likely to lead to closures of firms, causing increased unemployment and a fall in living standards

Question 6

distinction between nominal and real GDP

Answer 6

nominal: simply the money value of all goods and services produced by a country in one yr
real: nominal adjusted for inflation- can be used to measure changes in GDP over time

Question 7

distinction between total and per capita measures of GDP

Answer 7

for GDP to be meaningful as a measure of living standards, population needs to be taken into account
GDP per capita = total/population

Question 8

distinction between value and volume measures of GDP

Answer 8

volume of output = measures the number/amount of goods produced
value of output = measures amount of goods produced multiplied by the price at which they are sold
-> an increase in the volume doesn’t always mean there is an increase in the value

Question 9

distinction between GDP and GNI

Answer 9

GNI measures income received by a country both domestically (GDP) and via net incomes from overseas
so, GNI = GDP + (profits and income earned in other countries - foreign profits and income earned in the country)

Question 10

Purchasing Power Parity (PPP) definition

Answer 10

used to compare GDP in different countries
take into account a basket of goods that could be bought in each of the countries
the PPP exchange rate is the rate that equalises the purchasing power of different currencies by eliminating differences in prices between countries

Question 11

comparison of rates of growth between countries and over time

Answer 11

GDP- compare standards of living over time + between countries

Question 12

limitations of using GDP to compare living standards between countries and over time

Answer 12

may have the same GDP but different living standards for several reasons:
- difference in population
- difference in rates of inflation- need real GDP
- how much output is self-consumed and therefore not in GDP
- calculations and data collection methods may differ
- type of spending by the govt
- differences in income distribution