2.1.1 - Economic Growth

Question 1

What is GDP

Answer 1

GDP measures the total value of national output of goods and services produced in a given time period

Question 2

Which are the three ways of calculating GDP

Answer 2

Output = Expenditure = National income

Question 3

What are the benefits of the GDP measurement

Answer 3

• Measures of growth
• Measures of living standards

Question 4

Why might GDP not be a useful measurement

Answer 4

• Informal activity e.g. DIY work not accounted for
• Errors given large data collection
• Negative externalities - reviews quantity of output not quality, cost of air pollution/reduced biodiversity
• Income inequality, distribution of income
• Output produced, capital only benefits firms not consumers

Question 5

What is short run economic growth

Answer 5

The increase in the real value of goods and services produced and is measured by the annual percentage change in real GDP

Question 6

What is long run economic growth

Answer 6

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

Question 7

What is nominal GDP

Answer 7

The monetary value of the national output of goods and services measured at current prices

Question 8

What is real GDP

Answer 8

The monetary value of the national output of goods and services taking inflation into account

Question 9

What is real GDP per capita

Answer 9

Real income per head of population expressed at constant prices

Question 10

What is real disposable income

Answer 10

Income after deduction of taxes and benefits, and adjusted for the effects of inflation

Question 11

What is gross national income (GNI)

Answer 11

GNI is GDP plus net property income from overseas

Question 12

What is purchasing power parity (PPP)

Answer 12

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 13

How can purchasing power parity be useful at comparing living standards

Answer 13

Purchasing power parity partnered with GDP per capita and GNI per capita gives a better idea of living standards

Question 14

Benefits of using real GDP when assessing changes in living standards

Answer 14

• easy to make comparisons over time
• easy to compare different countries
• correlates with other measures of living standards including the HDI (human development index)
• higher income generally correlates with ability to buy more goods and services

Question 15

Limitations of using GDP when assessing changes in living standards

Answer 15

• understates real national income per capita due to unpaid work like volunteering
• doesn’t account for the shadow economy, includes illegal activities such as drugs, prostitution
• UK government estimated hidden economy “tax gap” at £3.5 billion in 2015-16

Question 16

Limitations of published GNI data when assessing changes in living standards

Answer 16

Doesn’t account for…

• regional inequalities of income and wealth
• changes in working conditions
• value of non market output and unpaid work
• non monetary factors like freedom of speech

Question 17

What is economic welfare

Answer 17

Measure of well being including social and economic factors

Question 18

What is economic well-being

Answer 18

Considers the personal life satisfaction/anxiety/stress of citizens

Question 19

What is gross national happiness - Bhutan

Answer 19

• Bhutan aims to measure progress in terms of gross national happiness (GNH)
• Includes 4 main aspects e.g. environmental conservation

Question 20

What is median income

Answer 20

Income of the middle household if all are ranked from lowest to highest

Question 21

How is a households disposable income measured

Answer 21

All earnings and investment income plus cash benefits received from state, minus direct taxes such as income tax and council tax