Measures of Economic Growth & Living Standards- GNI, GDP, GDP per capita, Green GDP Flashcards
(30 cards)
What is GDP (Gross Domestic Product)?
The total value of all goods and services produced within a country’s borders in a given time period. It measures economic output.
What is GNI (Gross National Income)?
GDP + net income from abroad (e.g., income from foreign investments). It better reflects income received by residents.
What is GDP per capita?
GDP divided by the population. It estimates average income per person, and is often used to compare living standards across countries.
What is Green GDP?
GDP adjusted for environmental damage and resource depletion. It provides a more sustainable measure of long-term growth and welfare.
Why do governments use national income statistics?s
Monitor economic performance
Evaluate policy effectiveness
Track living standards over time
Compare progress toward growth objectives
What is double counting in GDP?
When the value of intermediate goods is mistakenly included more than once (e.g., raw materials and finished goods), overstating GDP.
What are other drawbacks of using GDP?
Ignores income inequality
Doesn’t account for unpaid work (e.g., home care)
Misses out on informal/black market activity
Doesn’t reflect well-being or quality of life
Why might GDP rise without an improvement in living standards?
If growth benefits only the wealthy or results from environmental harm, average quality of life may not improve.
How can GNI and GDP per capita help assess living standards?
They offer better insight into how income is distributed and whether growth is inclusive and beneficial for the population.
Why does informal and black market activity limit GDP accuracy?
These activities are unregistered and untaxed, so they’re not recorded in GDP — meaning actual output may be higher than reported.
How does data collection complexity affect GDP?
Gathering accurate GDP data requires large amounts of information in a short time — increasing the chance of errors or omissions.
Why are negative externalities a problem in GDP measurement?
GDP ignores the costs of pollution, resource depletion, and environmental damage. If included, GDP might suggest lower living standards.
Does GDP account for income inequality?
No — GDP is an aggregate figure and says nothing about how income is distributed, so it might mask poverty in unequal societies.
What if most output is capital goods instead of consumer goods?
If production focuses on capital goods, living standards might not improve immediately, since these goods don’t directly benefit consumers in the short term.
What non-economic factors does GDP ignore?
GDP doesn’t reflect healthcare quality, education, freedom, gender equality, or democracy — all of which influence quality of life.
What is GDP per capita?
It is GDP divided by population, giving an average income per person. It’s often used to compare living standards across countries.
What are the main drawbacks of GDP per capita?
i) It shares the same limitations as GDP (e.g., ignores inequality, informal activity, environmental costs).
ii) It’s an average, which can hide disparities — a few wealthy individuals can inflate the figure.
How do remittances affect GDP per capita?
Remittances (money sent home by workers abroad) are not counted in GDP per capita, even though they raise living standards in the home country. This understates real income.
How does foreign direct investment (FDI) impact GDP?
FDI increases GDP because it adds to production, but if profits are repatriated (sent back to foreign owners), the local population may not benefit. GDP rises, but living standards might not.
Why might GDP per capita give a false impression of national wealth?
Because it ignores who earns the income and where it goes. For example, foreign firms operating locally boost GDP, but if profits leave the country, people don’t get richer.
What is GNI (Gross National Income)?
GNI is the total income earned by a country’s residents and businesses, including income from abroad, regardless of where the production takes place.
How is GNI calculated?
GNI = GDP + Net Factor Income (NFI)
Where:
NFI = Income earned by domestic residents abroad – Income earned by foreign residents in the home country
Why is GNI better than GDP for measuring living standards?
It includes remittances sent home by workers abroad
It excludes repatriated profits from foreign-owned firms (FDI), giving a more accurate picture of income retained by domestic residents
Does GNI solve all problems with GDP-based measures?
No. GNI still suffers from:
Averaging issues (like GNI per capita hiding inequality)
Exclusion of informal/illegal activity
