2.1.1 Economic Growth

Question 1

define economic growth

Answer 1

an increase in the long term productive potential of an economy( an increase in the real value of goods and services produced in the economy). Measured by annual percentage change in real GDP

Question 2

Define GDP

Answer 2

the value of goods and services produced in a country over a given period of time

Question 3

define power purchasing parities

Answer 3

exchange rate of one country to another that compares cost of living in different countries through comparing the value of a basket of goods

Question 4

define GNI

gross national income

Answer 4

the value of goods and services produced over a given period of time plus net overseas intrest payments and dividends

Question 5

define GDP per capita

Answer 5

national income per head of population, used a s a measurment for standard of living (total GDP/population)

Question 6

what is total GDP?

Answer 6

Gross Domestic Product:
the total value of national output of goods and serives produced in a year

Question 7

what is economic growth?

Answer 7

• an increase in the real GDP (value of goods and services) produced in the economy
• long run increase in productive potential of an economy

Question 8

what is nomianl GDP?

Answer 8

the final value of goods/ services within an economy without adjusting for inflation

Question 9

what is real GDP?

Answer 9

the total value of goods/services within an economy adjusting for inlation

Question 10

real/nominal

EXAM TIP

Answer 10

if ask to evaluate nominal daat, say that you cannot be completelt sure of impact on economy , as real data would be more useful and accurate

Question 11

If the nominal increase in personal salary was 4% and the inflation rate is 3%, then what is the real increase in salary?

Answer 11

real = nomial- rate of inflation
4 - 3 = 1%

Question 12

Why does the graph look like this?

Answer 12

In 2020 the nominal value doesn’t take into account the inflation rates that increaed

Question 13

How is the GDP per capita calculated?

Answer 13

GDP/ country population

Question 14

what is GDP per capita?

Answer 14

• shows how many goods/ srvices can be enjoyed per person / average output per person
• can be used as a comparison for standards of living in countries
  *

Question 15

what is gross national income (GNI)?

Answer 15

The value of goods and services produced ina given time period** plus net income from overseas** (final value of income flowing into the UK)

more accurate

Question 16

what is one of the main measures of economic growth?

Answer 16

the rate of change of real GDP

Question 17

What is the value and volume of GDP?

Answer 17

value: what certain goods/services are worth
volume : number of goods/services produced

Question 18

GNI vs GDP

Answer 18

GNI is better to use for standard of living (more accurate )
* GNI calculates income rather than output

Question 19

what is GNI per Capita?

Answer 19

the total real GNI/ Population

takes the population into account

Question 20

what must you account for when comparing data for growth rates between countries?

Answer 20

• real better than nominal (infaltion)
• GDP per capita is better than GDP , population taken into account

Question 21

what is gross national product (GNP)?

Answer 21

the value of goods/ services overtime through labour or property supplied by citezens of a country both domestically and overseas

value of goods made by people whether they live in the country or not

Question 22

what is economic welfare?

Answer 22

growth in living standards (more goods produced, more things for people)

Question 23

what is the problem when comparing GDPS?

Answer 23

• volatile exchange rates
• price levels vary (how much you can buy from each thing)

Question 24

What is a purchasing power parities

Answer 24

How much of a currency is needed buy a basket of goods compared to another currency
* allow international comparison

a ratio of currency excahage

Question 25

What is the Big Mac index?

Answer 25

🍔 how much a Big Mac costs around the world, and how many can be bought using the real GDP per Capita

Question 26

what are the limitations of real GDP used to measure living standards? (5)

Answer 26

* ignores population changes * ingores income distribution * ignores type of goods * ignores the underground economy * ignores the subsitance economy

Question 27

why is the fact that real GDP not taking into account population matters?

Answer 27

if population is grwoing faster than real GDP, then GDP per Capita will be decreasing and so everyone will be worse off than GDP suggests

Question 28

why does the type of good purchased incraese GDP but not living stnadards?

Answer 28

because the goods being produced have negative **externalities** which actualy decrease living standards

Question 29

what is the underground economy?

Answer 29

a.k.a the black market * transactions made for illlegal things (prostitues, drugs, ) which will not be included official data (GDP) therefore it is inaccurate to measure living standards by it * payments made in cash- private tutors

Question 30

what is the subsistence economy?

Answer 30

* people who produce their own food and consume it themselves * since nothing is bought and sold it cannot be recorded for in the GDP | therefore GDP underestimates and canno br used to measure living stnadar

Question 31

what is the easterlin paradox?

Answer 31

* initially as average income increases, hapiness increses to a point where people are able to live comfortably * however the marginal hapiness from each £ of income then begins to fall as people spend money on things they do not need

Question 32

what does "marginal" mean?

Answer 32

one extra unit | marginal hapiness= the hapiness gained from one extra unit of income

Question 33

how is hapiness measured in the UK?

Answer 33

* ONS- Office of National Statistics conduct a national well being survey * this data is compared to previosu periods of times | although is nominative an not completely accurate

Question 34

# bhutan what may other countries be focused on apart from GDP?

Answer 34

* gross national hapiness

Question 35

what causes ecoomic growth?

Answer 35

* AS or AD shift to the right (increase)

Question 36

what leads to increases in AD?

Answer 36

increase in: * consumption * investment * goverment spedning * exports Decrease in : * imports

Question 37

what leads to an increase in AS ?

Answer 37

long run * increase in quality or quantity of factors of production * productivity of factors of production short run * decrease in cost of production

Question 38

what is the difference between actual and potential growth?

Answer 38

* potential growth : an increase in productive potential * actual growth: when real GDP has actually increased

Question 39

why are power purchasing parities used?

Answer 39

to improve accuracy when comparing data between countries * compares cost of living between countries * compares price of a basket of common goods/ services in different countries

Question 40

define the term "index number"

Answer 40

an economic figure which reflects price/ quantity compared with the base year