2.1.1 Economic growth Flashcards
(13 cards)
When does economic growth occur?
When there is a rise in the value of Gross Domestic Product (GDP).
What does GDP measure?
The quantity of goods and services produced in an economy.
What does economic growth lead to?
Higher living standards and more employment opportunities.
What is real GDP?
The value of GDP adjusted for inflation.
For example, if the economy grew by 4% since last year, but inflation was 2%, real economic growth was 2%.
What is nominal GDP?
The value of GDP without being adjusted for inflation.
It can be misleading because it can make GDP appear higher than it really is.
What is total GDP?
It is the combined monetary value of all goods and services produced within a country’s borders during a specific time period.
What is GDP per capita?
It is the value of total GDP divided by the population of the country.
It essentially measures the average output per person in an economy.
It is useful for comparing the relative performance of countries.
What is Gross National Product (GNP)?
It is the market value of all products produced in an annum by the labour and property supplied by the citizens of one country.
It includes GDP plus income earned from overseas assets minus income earned by overseas residents.
GDP is within a country’s borders, whilst GNP includes products produced by citizens of a country, whether inside the border or not.
What is Gross National Income (GNI)?
It is the sum of value added by all producers who reside in a nation, plus product taxes (subtract subsidies) not included in the value of output, plus receipts of primary income from abroad (this is the compensation of employees and property income).
In what three ways can national income be measured by?
- GDP (Gross Domestic Product)
- GNP (Gross National Product)
- GNI (Gross National Income)
What are the limitations of using GDP to compare differences in living standards between countries?
- GDP does not give any indication of the distribution of income. Two countries with similar GDP’s per capita may have different distributions which lead to different living standards.
- GDP may need to be recalculated in terms of purchasing power, so that it can account for international price differences.
- There are large hidden economies, which are not accounted for in GDP, which can make GDP comparisons misleading and difficult to compare. (GDP does not include unofficial or unpaid work).
- GDP gives no indication of welfare. Other methods, such as the happiness index, might be used to compare living standards instead.
- There may be increases in other problems alongside economic growth, such as pollution.
What are the government objectives?
- Stable prices (low inflation).
- Steady and sustained economic growth.
- Low unemployment or full employment.
- A stable balance of payments.
What are purchasing power parities (PPPs)?
The rates of currency conversion that try to equalise the purchasing power of different currencies, by eliminating the differences in price levels between countries.
