Economic Growth and GDP/GNI Flashcards
What doe economists mainly use to measure economic growth or a nation’s national income
GDP - Gross Domestic Product
What is GDP?
- the total market value of all goods and services produced in a period of time
- includes indirect tax but not inflation
Define Real GDP
The value of GDP adjusted for inflation
Name the other measures of national income
- GVA (gross value added)
- GNP (gross national product)
- GNI (gross national income)
- Net national income (NNI)
Define the other measures of national income
- GVA - GDP minus indirect tax plus subsidies on goods
- GNP - GDP plus income earned from overseas assets minus income
earned by overseas residents - GNI- 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 - NNI - includes both net incomes from investments abroad and an allowance for depreciation of the nations capitol stock
real and volume vs nominal and value
- real - adjusted to inflation
- volume of national income - national income adjusted for inflation
- nominal - not adjusted for inflation
- value of national income - its money value at the prices of the day
The difference between total and per capita
- total national income is the total income of a nation
- per capita is the national income divided by the population to find the national income per person
- better for when comparing living standards of 2 nations
what is not included in calculation of national income?
- welfare payment
- children given pocket money from parents
- individual selling second hand item
why is national income measured?
- see changes in the economy
- make comparisons over time and between countries
- make judgements about economic welfare like the standard of living
Reasons for innacuracy in national income statistics:
- hidden economy (black economy)
- home-produced services
- public sector
- hard to value output as it is not bought and sold
What are the limitations of using GDP/GNI to compare living standards over time?
- prices - can increase over time
- changes in population -
- qualities
What are the limitations of using GDP/GNI to compare living standards between countries?
- GDP doesnt give indication on distribution of income (two nations with same GDP per capita may have different distributions and therefore different living standards)
Purchasing Power Parity - PPP
an exchange rate of one currency for another which compares how much a typical basket of goods in one country costs compared to that of another country
