Macroeconomics Objectives - 2.1.1

Question 1

Definition of economic growth:

Answer 1

When a country produces and sells more goods than it did the previous year.

Question 2

What is an economic activity?

Answer 2

The amount of buying and selling in a period of time.

Question 3

What measure economic growth?

Answer 3

Economists measure economic growth by using Gross Domestic Product ( GDP ).

Question 4

Gross Domestic Product ( GDP ):

Answer 4

Total value of all goods and services produced and sold within a year.

Question 5

How can you measure growth from GDP in a year?

Answer 5

% Change in GDP = ( year 2 - year 1 )/ year 1 * 100

Question 6

Mordor’s GDP in 2014 was $4000.
Mordor’s GDP in 2019 was $5000.
What is the % Change in GDP?

Answer 6

(5000-4000)/4000 * 100=25%

Question 7

Real GDP:

Answer 7

GDP with inflation taken into consideration.
e.g. GDP = 4.4%; Inflation = 2.3%
GDP = 4.4% - 2.3% =2.1%

Question 8

❗️

Answer 8

Price can rise, but it does not mean output has increased!

Question 9

GDP per capita:

Answer 9

GDP/population
GDP per capita is used to measure the standard of living to account for differing population sizes between countries.

Question 10

Issues with GDP per capita:

Answer 10

Average income per person tells you a little about:
- the health of all people;
- income inequality in a country can be high (Middle East, Russia);
- regional income inequality in a country be (China rural vs urban).

Question 11

Other limitations of GDP:

Answer 11

• Statistical error - calculating/collecting the data wrongly;
• Home produced goods (e.g. vegetables/DIY) are not included;
• The hidden economy - Some transactions in an economy go unrecorded leading to inaccurate GDP values. E.g. if you drive your friend to the airport and it costs $5, you will not declare if for GDP. Such transactions make up the Hidden economy or the Black market.
• GDP comes at the cost of pollution, depletion of resources and bad health.