THEME 2 - Topic 1 - Measures Of Economic Growth

Question 1

Define macroeconomics

Answer 1

The study of the interrelationships between economic variables at an aggregate level.

Question 2

Name 4 macroeconomics indicators

Answer 2

1. Economic growth
2. Inflation
3. Unemployment
4. Balance of payments

Question 3

Name 3 sources of economic data

Answer 3

1. Office for National Statistics (ONS)
2. World Bank
3. United Nations

Question 4

Define nominal value

Answer 4

The value of an economic variable based on current prices taking no account of changing prices through time. and is expressed through money prices.

Question 5

Define real value

Answer 5

The value of an economic variable taking account of changing prices through time, removing the distortion of inflation and is based on constant prices.

Question 6

What is the formula for real gdp?

Answer 6

Real GDP = Nominal GDP x P index base
———————
P index current

Question 7

Define an index number

Answer 7

A device for comparing the value of a variable in one period or location with a base observation.

Question 8

What is the formula for an index number?

Answer 8

Index number = current value
——————— x100
base value

Question 9

Define GDP

Answer 9

A measure of the economic activity carried out in the domestic economy over a period of time and is the value of all the goods and services produced by the factors of production based within a country in a particular year.

Question 10

Define GNI

Answer 10

A measure of all the goods and services produced by a country’s owned factors of production wherever they are located- it is GDP plus net income from abroad.

Question 11

Define potential economic growth

Answer 11

An expansion in the productive capacity of the economy, and when there is an improvement in the quality and/or the quality of the factors of production, and is represented by a shift to the right of the PPF.

Question 12

Define actual economic growth

Answer 12

The rate of growth of real GDP in a period (usually 1 year).

Question 13

Name the 3 ways of calculating GDP

Answer 13

Income
Expenditure
Output

Question 14

What does the income method of calculating GDP refer to?

Answer 14

The income paid to the factors of production.

= wage + rent + investment + profit

Question 15

What does the output method of calculating GDP refer to?

Answer 15

The value of output produced by various industries.

Question 16

What does the expenditure method of calculating GDP refer to?

Answer 16

The total expenditure broken down into:

Consumption
Investment
Government spending
Net exports

Question 17

What is the formula for calculating GNI?

Answer 17

GNI = GDP + net income from abroad

Question 18

Define GNI per capita

Answer 18

Average level of GNI per head of the population.

Question 19

Define purchasing power parity rate (PPP)

Answer 19

Allows a traveller between the countries in question to convert between the relevant currencies and be able to purchase the same quantity of goods/services regardless of the country they are in.

Question 20

Name 4 limitations of using GNI per capita for measuring the standard of living

Answer 20

1. Inequality in income distribution
2. Informal sectors
3. Exchange rate problems
4. Is it an appropriate social indicator?

Question 21

Name 4 people other social indicators

Answer 21

1. Human development index (HDI)
2. Measures of economic welfare (MEW)
3. Index of sustainable economic welfare (ISEW)
4. Gross national happiness (GNH)

Question 22

What must the income method remove when calculating GNI?

Answer 22

Transfer payments (e.g unemployment benefits).