2.1 Measures Of Economic Performance

Question 1

Economic growth is a measure of an increase in…

Answer 1

… real gross domestic product (GDP). This is referred to as actual economic growth.

Question 2

Real GDP

Answer 2

The value of GDP adjusted for inflation. Therefore, using real GDP, it is possible to measure changes in the volume of output over time.

Question 3

Nominal GDP

Answer 3

the total value of goods and services produced in an economy, measured at current prices without any adjustment for inflation

Question 4

GDP

Answer 4

The total monetary value of all final goods and services produced within a country’s borders during a specific period, typically a year or a quarter.

Question 5

GDP per capita

Answer 5

The value of total GDP divided by population of the country. It essentially measures the average output per person in an economy. This is useful for comparing the relative performance of countries.

Question 6

Gross National Income (GNI)

Answer 6

Measures income received by a country both domestically (GDP) and via net incomes from overseas.

Question 7

Purchasing power parities

Answer 7

• A theory that estimates how much the exchange rate needs adjusting so that an exchange between countries, according to each currency’s purchasing power.
• Purchasing power parity will involve looking at a basket of goods to determine effective living costs.

Question 8

Limitations of using GDP to compare Living Standards between countries

Answer 8

• Distribution of income: Two countries with similar GDP’s may have different distributions which leads to different living standards in the country.
• Fails to account for non-market activities like volunteering, and household work, which are important to people’s well-being.
• Doesn’t account for environmental degradation and other negative externalities.
• Doesn’t account for subjective well-being measures like happiness, life satisfaction or mental health.

Question 9

UK national wellbeing

Answer 9

• The UK Government undertakes regular surveys of personal well-being that make estimate of overall satisfaction with life. These surveys measure emotions, such as happiness and anxiety, and the extent to which people feel the things they do are worthwhile.
• These measures are strongly related to other important aspects of quality of life such as health, relationships and employments.
• These surveys provide an attempt to measure subjective happiness.

Question 10

Subjective happiness

Answer 10

‘Self-reported’ levels of happiness with ones life

Question 11

The relationship between incomes and subjective happiness

Answer 11

• Research suggests that there is a positive relationship between income and happiness up to a certain level of income.
• However, once incomes increase beyond that level, marginal gains in happiness falls. This is referred to Easterlin paradox.
• A policy implication of Easterlin paradox is that governments need to focus not only on economic growth but also on other objectives such as income equality and a clean environment.

Question 12

Economic growth

Answer 12

The increase in the real value of goods and services in an economy over time, typically measured by the annual percentage change in GDP.

Question 13

Comparison of rates of growth between countries over time

Answer 13

GDP data are used to compare the standard of living over time and between countries.
The standard of living refers not only to income but also the quality of life, which includes housing, health, the environment and safety.

Question 14

Value vs Volume

Answer 14

volume refers to the quantity or number of goods or services produced or traded, while value represents the worth or price of those goods or services, often measured in monetary terms.