Unit 5 Flashcards
(14 cards)
What is the difference between GDP and GNI?
GDP: Gross Domestic Product -> measures the total value of output from economic activity during a period
GNI: Gross National Income -> is the sum of all production carried out by individuals or firms that are based within the country, even though they may be working outside it (GDP + inflows of income from domestically owned companies operating abroad - outflows of income by foreign residents or companies = GNI)
What are two basic problems with the interstate comparison of GDP?
- Exchange rates fluctuation compared to US$, which leads to GDP changes without anything being done
- Different price levels that exclude the standards within a certain economy
What measures are taken to overcome the basic problems of interstate GDP comparison?
Calculating the purchasing power parity (PPP). The PPP is calculated by a an index, a standardised ‘basket’ of goods and services.
Has is economic growth measured?
In most cases by the annual change in a country’s GDP or GNI
How to calculate the time in which an average growth rate would double the economy?
70 / average growth rate = time taken to double in size
Why do some argue that the West’s gain was other regions’ loss?
Europe’s build-up of armies and navies that were aggressively deployed to colonise regions, which enabled Europe to expand its domestic markets, re-invest profits and expand production
What are the arguments for internal changes in Europe?
Other accounts suggest that Europe owed its faster progress to internally generated advantages – notably of technology, social practices (including religion and culture) and political organisation
What is ‘capital widening’?
If net investment just matches the growth rate of the labour force, capital and labour are growing at the same rate, and the capital:labour ratio stays the same
Name a few examples of investment types.
Fixed capital: Machinery, industrial buildings
Human capital: Qualification, work experience
Social capital: Business contacts
Financial capital: Shares, bonds
Intellectual capital: Patent, copyright
How is investment defined?
Investment is the purchase of additional capital – physical or financial assets – that can be used to generate future income
What is the condition for the stock of capital to grow?
Investment must exceed the depreciation of the existing stock – its reduction due to items of capital wearing out or becoming obsolete
What is ‘capital deepening’?
If net investment exceeds the growth rate of the labour force, capital grows faster than labour, so the capital:labour ratio increases (more capital per labour unit)
What are the key points of neoclassical theory?
- A rise in the investment rate will give a country faster growth temporarily, though not permanently.
- It will therefore raise a country’s per capita GDP, but will not lead to a higher growth rate over the long run.
- This is because countries will adjust to an equilibrium capital: labour ratio.
Which thinker is known as the advocate of the ‘new economic geography’ approach?
Paul Krugman
