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Economics - Theme 2 > Theme 2, Economic Growth CC3 > Flashcards

Theme 2, Economic Growth CC3 Flashcards

1
Q

GDP

A

Gross Domestic Product

value of the output of all goods and services produced within a country over a period of time

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2
Q

Nominal GDP

A

the money value of the output of all goods and services of a country
sometimes called money GDP
also GDP at current prices

will rise if either:

  • more goods or services are produced
  • the prices of goods or services rises
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3
Q

total GDP

A

the value of output of the whole economy

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4
Q

value

A

the measure of the money value of GDP i.e. nominal GDP

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5
Q

real GDP

A

nominal GDP adjusted for inflation
real GDP will rise only if the number of goods or services rise
also GDP at constant prices

to calculate: money GDP divided by a prices index

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6
Q

per capita GDP

A

GDP per head of the population

total GDP / current population

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7
Q

volume

A

measure of the number of goods and services produced i.e. real GDP

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8
Q

economic growth

A

increase in GDP

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9
Q

recession

A

decline in GDP for two successive quarters

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10
Q

GNI

A

Gross National Income
GDP + income residents have received from abroad (in form of interest, rent, profits, dividens) - income leaving the country

GNI = GDP + net income from abroad

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11
Q

difference between GNI and GDP

A

GDP is based on location (i.e. value of everything produced within the borders) whereas GNI is the value produced by all citizens of a country

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12
Q

when is GNI used rather than GDP

A
  • GNI considered more accurate
  • United Nations uses GNI rather than GDP in calculating the Human Development Index
  • also used as basis for a large proportion of the UK’s contribution to the EU’s budget
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13
Q

Case Study 1: GDP vs GNI

A
  • for most countries, flows in and out of country tend to balance out

Ireland

  • outflows of profits and income
  • global business giants located there
  • whilst Ireland produces a lot of income per inhabitant, less of it stays in the country

Japan

  • GNI rank higher than GDP
  • reflects effect of strong net financial inflows from firms and workers based abroad
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14
Q

Case Study 2: GDP vs GNP per head

A

Luxembourg

  • GDP per head at top of OECD rankings for several years
  • 90,000 strong labour force commuting from Germany, France, Belgium and the Netherlands
  • not counted in population of 450,000
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15
Q

formula for converting nominal GDP to real GDP

A

real GDP = ( nominal GDP / price index ) x 100

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16
Q

purchasing power parity

A

the rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country

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17
Q

standard of living definitions

A
  • amount of goods and services that households have access to
  • financial health of a population measured by income or consumption level per head
  • measure of welfare of people living in an economy
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18
Q

reasons why a rise in national income is likely to mean a rise in living standards

A
  • households can afford more goods and services
  • households can afford better housing and food consumption
  • governments can afford to provide more public services such as education and health care
  • households can afford to work fewer hours and take holidays
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19
Q

reasons why a rise in national income may not improve living standards

A
  • a rise in pollution, deterioration of environment
  • more hours worked may be the cause of the rise in national income
  • rising congestion
  • higher levels of stress
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20
Q

problems with GDP

A
  • some output unrecorded in all countries: non-marketed output (voluntary work), ‘hidden’ or ‘informal’ economy
  • production is not the same as consumption
  • ignores external costs of production
  • GDP per head ignores distribution of income
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21
Q

why does the size of a shadow economy vary so much between countries

A

depends on whether the country is developed or not

government regulations, law enforcement

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22
Q

what types of industry are most likely to contribute to the shadow economy in a developed country

A

construction

criminal activities such as drug delivery

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23
Q

is it better to use mean or median

A

mean: symmetrically distributed data
median: all others

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24
Q

mean GDP value

A

total GDP / population

25
Q

limitations of export-led growth

A

too dependent on state of global economy and foreign demand

26
Q

trade cycle

A

business cycle/economic cycle
how GDP changes over time
diagram

27
Q

boom

A

rapid GDP growth

28
Q

Trend rate of growth

A

average rate of growth over time

29
Q

‘Lawson Boom’

A
  • period of rapid growth in late 1980s
  • Chancellor of the Exchequer, Nigel Lawson
  • between 1983 and 1988, growing above trend rate of 2.5%
  • substantial income tax cut
  • high inflation and imports
30
Q

characteristics of a boom

A
  • strong and rising AD
  • employment and real wages rise
  • labour shortages develop
  • increased demand for imports: high MPM
  • government tax revenues rise quickly
  • rising productivity
  • profits and investment increase
  • cost push inflation
  • demand pull inflation
31
Q

characteristics of a boom: cost push inflation

A

results from rising wages and other costs with shortages of inputs

32
Q

characteristics of a boom: demand pull inflation

A

results from AD rising faster than AS

33
Q

characteristics of a recession

A
  • declining demand for output
  • higher levels of spare productive capacity
  • rising unemployment
  • sharp fall in business confidence & profits
  • decrease in capital investment
  • de-stocking and heavy price discounting
  • lower inflation
  • falling demand for imports
  • increased government borrowing
34
Q

brief history of UK recessions

A
  • the Great Depression 1929 - 33
  • Stagflation 1973-76
  • manufacturing meltdown 1980-81
  • Lawson’s legacy 1990-92
  • Banking bust 2008-09
35
Q

output gap

A

difference between actual and potential output in an economy

36
Q

negative output gap

A

when GDP falls below it’s potential level leaving spare capacity in the economy

37
Q

effects of a negative output gap

A
  • falling rates of inflation/deflation
  • fall in current account deficit
  • rising unemployment
  • business failures
38
Q

positive output gap

A

when GDP is above potential output or when nominal GDP continues to grow when the economy is at full capacity
demand is very high so factories and workers operate far above their most efficient capacity, not long term

39
Q

why is it difficult to measure the positive output gap

A
  • potential output can only be estimated
  • even actual output may not be accurate as GDP stats are often revised
  • no always clear how much capacity may be lost during and after a recession
40
Q

impact of economic growth on consumers/households

A
  • money incomes, real incomes, disposable income rise
  • more people employed
  • afford more consumer durables, holidays, better quality housing
  • better nutrition standards
  • elimination of poverty
  • governments able to spend more on health care, education etc
41
Q

impact of economic growth on firms

A
  • sales and profits rise
  • scope for introducing new products
  • entrepreneurs more successful in starting new businesses
42
Q

impact of economic growth on government

A
  • higher tax revenues so can spend more on public services

- less spending on benefits (less unemployment

43
Q

difference between long run and short run economic growth

A
  • long run economic growth requires investment in capital goods
  • short run economic growth means producing more capital goods so less consumer goods
  • long run: increase in potential output, PPF shifts out
44
Q

costs of economic growth

A
  • resource depletion and environmental degradation
  • inflation
  • current account deficit
  • greater inequalities
45
Q

cost of economic growth: resource depletion and environmental degradation

A
  • non renewable resources used up
  • industrial pollution
  • poor air quality
  • waste
  • irreversible damage from climate change

shown with Environmental kuznets curve

46
Q

cost of economic growth: inflation

A

growth caused by rising AD can only be sustained if AS is rising too or inflation will result when the economy reaches full capacity

47
Q

cost of economic growth: current account deficit

A
  • UK has high MPM
  • growth of incomes lead to a rise in imports
  • unless exports rise too this causes a rise in the current account deficit
48
Q

cost of economic growth: greater inequalities

A
  • tends to lead to a larger rise in incomes of some workers (especially skilled workers)
  • evidence suggests further widening of the gap between rich and poor in USA and UK recently
  • suffer from poor health and low productivity, stifling growth as a result
49
Q

does economic growth always come at the cost of environmental degradation

A

Environmental kuznets curve shows that once an economy reaches the turning point of an industrial economy, environmental damage declines

50
Q

does economic growth always come at the cost of inflation

A

moderate inflation is needed to drive consumer spending as they expect prices to rise so spend more, which is critical for economic growth

51
Q

does economic growth always come at the cost of current account deficit

A
  • rise in exports

- slow growing economy means producers and consumers can adjust

52
Q

does economic growth always come at the cost of greater inequalities

A

the Kuznets curve suggests that this gap will narrow as a country becomes more developed
governments can use benefits, sick pay etc to help the poor
inspiration to work hard to try to earn more money, innovation and risk takers

53
Q

wellbeing

A

health, education, personal ativities, political voice and governance, social connections, environmental conditions, personal security, economic security

54
Q

arguments in favour of GDP

A
  • easy to measure
  • broad indicator of development
  • cardinal ranking so easy to compare
  • all countries us
  • can be broken into GDP per capita
55
Q

relationship between income and happiness

A
  • Easterlin Paradox

- shows that happiness depends on relative income and wealth rather than absolute income and wealth

56
Q

arguments in favour of using wellbeing to measure growth

A
  • ensures policy making considers all aspects of population
  • takes into account sustainability
  • showcase what opportunities are available to future generations
57
Q

arguments against using wellbeing

A
  • how is it measured? surveys could be long and subjective, rushed
  • hard to assess environmental damage
58
Q

arguments againts GDP

A

does not show inequalities

Economics - Theme 2 (7 decks)

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