2.1: Economic growth

• GDP

  Measure of the market value of final goods at a given time period
• Economic growth

  A rise in the value of GDP measured annually in percentage
• Nominal GDP

  The actual value of all goods in an economy in a one-year period
• Real GDP vs Nominal GDPin terms of inflation and output

  Real GDP focuses on inflation while Nominal GDP focuses on output
• Formula for real economic growth

  Nominal economic growth-inflation rate
• How is economic activity determined?

  Through GDP
• How can GDP be measured?

  The expenditure approach: adds up the value of all the expenditure in the economy and The income approach: adds up the rewards for the factors of production used
• What is GDP per capita and what is it used for?

  Indicates the mean wealth of each citizen in a country, used to compare standards of living
• What do 'constant prices' on the exam refer to?

  Real GDP
• GNI

  measures the income earned by citizens operating outside of the country + the GDP
• Why is money earned outside of the country included in GNI?

  Many citizens employ their resources abroad, then they send money back home
• GNP

  GDP + Income from abroad
• GNP p/capita vs GDP/p capitain terms of a country's wealth

  GNP p/capita offers a more realistic view of a country's wealth
• Usage of National Income Statistics

  Provide insights on the effectiveness of government policies, used to make judgments about the wealth and standard of living of each country, and allow for comparisons across different countries and time periods.
• Why is using real GDP better than nominal GDP?

  A country may have a high rate of economic growth and a high rate of inflation. Real GDP offers a better comparison as it includes inflation rates.
• Which measure is better for determining income that is actually within a country's borders?

  Real GNP p/capita
• What is PPP and what is it used for?

  A conversion factor that is applied to GDP, GNI, and GNP. It's used for more accurate standard-of-living comparisons between countries where goods cost different amounts.
• What does PPP show?

  The number of units of a country's currency that is required to buy a product in the local economy
• How can GNP p/capita be used in relation to PPP?

  GNP p/capita can indicate whether the standard of living is high depending on how much people spend to acquire said standard of living
• What are the limitations of using GDP to compare standards between countries and over time?

  Lack of info provided on inequality, quality of goods, does not include voluntary work, differences in hours worked, and does not consider environmental factors.
• GDP + environmental factors

  GDP does not consider the environmental and health impacts of generating income within a country (externalities)
• GDP + Differences in hours worked

  Lack of consideration of the amount of time taken to produce GDP/capita
• GDP/capita + voluntary work

  If GDP/capita included voluntary work it would be higher
• GDP + Quality of goods

  No information on the increase/decrease in the quality of goods.
• GDP + Lack of information provided on inequality

  The distribution of income provided through GDP/capita is an average and not inclusive of the differences in the standard of living within the same country
• Who measures National Happiness in the UK?

  The Office for National Statistics
• Difference between national income data and national happiness data

  NI data is positive and NH data is normative
• What is the Easterlin Paradox and what does it explain?

  It explains the link between happiness and increase in income. It argues that happiness and increases in income have a direct relationship up to a point.