Economic Growth (Up Learn)

Question 1

How does an economy grow?

Answer 1

Produce more output

Question 2

Real GDP

Answer 2

Measured by adding just the quantity, no price tags. What is really being produced.

Question 3

Nominal GDP

Answer 3

Measured by adding all the prices.

Question 4

How could Nominal GDP go up but real GDP doesn’t?

Answer 4

The price are going up due to inflation. When Nominal GDP rises we don’t know if it is due to quantity increasing or prices increasing.

Question 5

Economic Growth

Answer 5

Increase in Real GDP (not fooled by Nominal GDP)

Question 6

Equation

Answer 6

Real GDP Growth = Nominal GDP Growth- Inflation. Removing effects of inflation makes us only left with just increase in output i.e. increase in Real GDP.

Question 7

Why can Real GDP be misleading?

Answer 7

Because we aren’t considering the size of population. The real GDP could be low but real GDP per capita/person could be high.

Question 8

GDP

Answer 8

Gross Domestic Product. What is produced in your own country, not abroad.

Question 9

GNI

Answer 9

Gross National Income. GNI = GDP + Net Income from abroad (net income could be payments as gifts from family abroad or sending remittances abroad to your families)

Question 10

How could a country be poorer (lower GNI) than what their GDP reveals?

Answer 10

Lots of income could be sent abroad.

Question 11

Income equals what?

Answer 11

Income = Output = Expenditure

Question 12

GNI equals what?

Answer 12

Gross National Output (stuff we make or produce)= Gross National Product

Question 13

Net Income is calculated by?

Answer 13

Remittances in minus remittances out

Question 14

Marginal Definition

Answer 14

One extra unit

Question 15

Easterlin Paradox

Answer 15

As income increases, happiness increases up to a point as people are able to afford important items like food. However the marginal happiness from each extra £ of income decreases as people spend money on less important things = less happiness.

Question 16

How is happiness measured?

Answer 16

National Well Being Survey by ONS. Could be inaccurate as it is based on opinion: normative statements.

Question 17

More Economic Growth Means?

Answer 17

More goods and services delivered to the population

Question 18

What does Gross National Happiness measure?

Answer 18

Spiritual, Physical, Environmental and Social well being of the citizens.

Question 19

Difficulties of using GDP to compare countries

Answer 19

Nominal GDP is measured in different currencies so it is hard to compare as exchange rates are volatile and change all the time, making them unreliable. Also, we don’t know how much a certain amount is worth in a certain country. Therefore we use PPP.

Question 20

What does PPP tell us?

Answer 20

How much of 1 currency is needed to buy a basket of commonly bought goods of both countries compared to another currency. So in Grenada and Sri Lanka, fish and cycles are bought the most. In Grenada it costs $1 whereas in Sri Lanka it costs 26 rupees. Therefore $1=26 rupees. So now you can compare nominal GDP.

Question 21

Limitations of Using GDP to compare living standards

Answer 21

Population Changes, Income Distribution, Types of goods and services, Underground economies, Subsistence economies

Question 22

Population Changes

Answer 22

If population is growing faster than real GDP, then real GDP per capita would be decreasing and vice versa.

Question 23

Income Distribution

Answer 23

Real GDP looks at how rich the country is overall but not how equally distributed the income is. Rich people got richer but the poor people stayed the same.

Question 24

Types of Goods and Services

Answer 24

Real GDP rises but living standards fell because they spend money on the wrong type of goods. Eg: if they are spending lots of money on tanks then people might die so their living standards would fall. Negative externalities is the result of consuming something bad; costs that affect others.

Question 25

Underground Economy

Answer 25

Illegal or unreported earnings don’t get recorded in real GDP: cocaine, private tutors. Real GDP fails to accurately measure what is produced in an economy therefore can’t measure living standards.

Question 26

Subsistence Economy

Answer 26

People who produce and consume themselves without selling to others aren’t recorded in real GDP.