Uses of national income data

Question 1

Short run economic growth

Answer 1

The increase in the real value of goods and services produced by an economy over a period of time

Question 2

Long run economic growth

Answer 2

The increase in a country’s productive capacity / potential output

Question 3

PPP

Answer 3

Purchasing power parity measures how many units of one country’s currency are needed to buy the same basket of goods and services as can be bought with a given amount of another currency

Question 4

Example of an indicator for the purchasing power of an economy

Answer 4

The Big Mac index Compares the US dollar price of Big Max across countries

Question 5

What is the mean indicator for the standard of living

Answer 5

Real GNI per capita expressed at PPP

Question 6

Benefits of using real GDP when assessing changes

Answer 6

Easy to make comparisons over time
easy to compare different countries
higher income generally correlates with buying more goods and services

Question 7

Flaws in measured GDP as an indicator

Answer 7

GDP tends to understate due to the shadow economy which includes illegal activities and legitimate business activities such as non-reported self-employment income
(UK started to include estimates and spending from Shadow economy in 2014)
scale of inequalities, non-monetary factors that affect living standards such as gender equality, the quality of goods and services produced..