GDP Flashcards
Estimates made
UK produces the earliest estimate of GDP of the major economies, around 25 days after the quarter in question.
This provide policy makers with an early or “flash”, estimate of the real growth in economic activity
Speed of estimate
It is quick but only based on the output measure
At this stage only about 40% of the data is available, so this figure is revised as more information comes on
Revisions
They are two subsequent revisions at monthly intervals
But revisions can be made as much as 18 months to two years after the first “flash” estimate
Nominal GDP
This is calculated first but the actual figure can be distorted by high inflation figures and so, before can be announced, it needs to be adjusted by the change in price levels
This is known as real GDP and is the measurement used on an aggregate demand and aggregate supply diagram
This is achieved by using a “base year” as standard
Nominal GDP example
GDP 2008- £800 billion
GDP 2009- £880 billion
£80 billion/ 800 billion x 100% = 10%
Economic growth for 2009= 10%
Real GDP example
Inflation in 2009= 4%
Base year 2008 = 100
Base year 2009= 104
GDP fig x base year/current year
£880 billion x 100/104 = £846.15 billion
£46.15 billion/ £800 billion x 100%= 5.77%
Actual economic growth = 5.77%
Measuring economic growth
The circular flow of income shows that a country’s output is equal to income and expenditure
Therefore real GDP can be calculated by totalling up the output, income or expenditure of the country and economic growth can be calculated by changes in any of these
It can also be measured through unit labour costs; total productivity divided by wages
Difficulties in interpreting changes
Population increase- if there is an increase in real GDP, population growth needs to be accounted for as this could lead to a decrease
- by using real GDP per capita this solves the problem and gets the right figure
Informal economy-cash in hand- unrecorded activity in the economy
Unemployment, inflation and trek GDP a figures are incorrect
Reduces tax revenue for the Government- not a true reflection= issues
Living Standards- if a rise in real GDP is brought by an increase in capital - takes a long time for the effect to improve
It could also be due to policing a rise in direct result in production
Happiness- people do not get happier as living standards improve
Quickly get used to improvements and become expected
Happiness based on their income relative to others, so a uniform change does not improve people’s attitude
Causes of economic growth
Increase in AD
Increase in AS
Costs of economic growth
Over use of resources means re-allocating production from consumer goods to capital goods, thus reducing availability
Increased production may lead to increased pollution she the environmental damage it brings
It may have a negative effect on people’s quality of life
Ie- increased car use causes congestion, noises and accidents
Growth may use up scarce resources meaning that it is not sustainable
Benefits of economic growth
Increased GDP per head means more goods and services per person, raising living standards
Higher output increases tax revenue which can be spent on schemes to reduce poverty by improving public services
Increased output generally means more labour of required and so unemployment decreases
It can also raise tbf status of the country in the international community
GDP
Captures the state of the economy in one number
If the GDP measure is up on the previous three months, the economy is growing
If it is negative it is contracting, two consecutive three-month periods of contraction mean an economy is in recession
