2.1.1 Economic Growth

• Nominal Value


  The value of an economic variable based on current prices and does not account for changes in price
• Real Values


  The value of an economic variable considering changing prices
• Purchasing Power Parity (PPP)


  The rate at which one country's currency is converted to buy the same 'basket of goods and services' in another country. Currencies are in equilibrium when it is the same price in each country
• Easterlin Paradox


  Increases in a country's per capita income do not necessarily lead to increased happiness or life satisfaction among its citizens
• Volume


  The quantity of output produced in an economy
• Value 


  The monetary cost of all goods at current prices
• Undervalued 


  A country with an undervalued currency has more affordable goods and services so it is cheaper to live there
• Overvalued


  A country with an overvalued currency has fewer affordable goods and services so it is expensive to live there
• Big Mac Index


  A way of measuring Purchasing Power Parity between different countries. By converting the average national Big Mac prices to U.S. dollars (S) the same goods can be informally compared
• BRICS Economies


  Brazil, Russia, India, China and South Africa are the emerging markets have a bigger share of world trade than the USA
• Constant Prices


  The data has been adjusted for inflation
• Economic Cycle


  Variations in the annual rate of growth of RNO (real national output) over time
• Economic Development


  Long-run improvements in broad measures of income per capita, education and health outcomes and reductions in extreme poverty, hardship and inequality.
• Economic Growth

  An increase in the real value of goods and services measured by the % change in GDP or a long-run increase in a country's productive capacity
• Economic Shocks

  Unpredictable events eg. volatile global prices for oil, gas
• Economic Stability


  Growth, prices and unemployment do not change much from one year to another
• Full Capacity Output

  Level of GDP where all available factor inputs are fully employed
• Gross National Income


  The value of all output an economy produces over a period of time (GDP) plus net overseas interest payments and dividends
• Human Development Index (HDI)


  An index used to assess comparative levels of development in countries, quantified in terms of literacy, life expectancy and purchasing power as measured by real national income per capita (PPP adjusted).
• National Happiness


  Societal and personal well-being which assesses areas such as health, relationships, education and skills, housing quality, finances and the environment.
• Nominal GDP

  Monetary value of all goods and services produced expressed at current prices/ not adjusted for inflation
• Purchasing Power

  The buying power of a unit of currency. It is inversely related to the rate of inflation
• Real Disposable Income


  Income after taxes and welfare benefits, adjusted for the effects of inflation
• Real GDP

  Nominal GDP adjusted for inflation/ expressed at constant prices
• Gross National Product


  The value of all goods and services produced by a country's citizens = GDP + Factors of Production abroad
• Problems using GDP to Compare Living Standards

  -Inaccuracy of data

  -inequalities

  -Quality of goods and services

  -Comparing different currencies

  -Spending
• Inaccuracy of Data

  Accounts for: hidden economy, inefficient collection/ calculation of data, unpaid/ voluntary work, errors in calculating inflation, methods used to calculate GDP and transfer payments
• Inequalities


  Increased GDP may not mean increased living standards if increased income is concentrated in one group and income distribution changes over time
• Quality of Goods and Services


  Living standards may have increased more than GDP suggests as the quality of products has improved
• Comparing Currencies


  Some countries use USD others argue it should use PPP to account for different costs of living
• Spending

  Some types of spending increase GDP, but not living standards e.g defence spending during wars
• Social Status


  How the wealth of others around us impacts happiness the higher your income the higher your social status thus you are happier