2.1.1 Economic growth

• Define short run

  The ACTUAL annual percentage change in real national output
• Define Long run

  An increase in the POTENTIAL productive capacity of the economy
• How is short run measured?

  By the annual percentage change in real national output or GDP
• How is long run measured?

  The maximum potential output of the economy using all factor resources are illustrated on the PPF
• Define economic cycle

  The overall state of the economy as it goes through the four stages in a cyclical pattern

  Or

  The circular movement of an economy as it moves from expansion - peak - contraction - trough (and back again)
• Define economic growth

  Economic growth refers to the increase in a country's real GDP over time.
• How do you measure economic growth

  By calculating the percentage change in real GDP over a specific period, such as a year.
• What is the formula for the growth rate

  Growth Rate = [(GDP at Time 2 - GDP at Time 1) / GDP at Time 1] × 100
• What is nominal value

  >Not adjusted for inflation

  
  

  >Represent current market prices
• What is real value

  >Takes into account inflation

  
  

  >reflect changes in the quantity of goods and services produces
• What is total value


  Represent the aggregate sum of a variable for a given population or area.
• Define Real GDP

  The value of goods and services produced in the economy over a period of time taking into account inflation
• What's the equation for real national output

  Nominal national output / Average price level
• Define total national income

  The value of all goods and services produced in a country
• Define per capita income

  >Average income per person in a given area in a year

  
  

  >total income/the no of people in the country
• Define Value

  Value represents the monetary worth of goods and services produced
• Define Volume

  The quantity of goods and services produced in a country
• Define Gross National Income (GNI)

  -A country's total level of income

  
  

  -It is a broader measure than GDP and considers income earned from overseas investments and remittances.

  
  

  -It includes the total income earned by a country's residents and businesses, both domestically and abroad.
• Define Gross National Product (GNP)

  Value of all goods and services produced by domestic businesses both at home and abroad (overseas assets)
• Comparison of Rates of Growth Between Countries and Over Time (1)

  -Cross-Country Comparisons:

  
  

  Comparing growth rates between countries helps assess relative economic performance.

  
  

  It can reveal disparities in development and highlight factors contributing to growth
• Comparison of Rates of Growth Between Countries and Over Time (2)

  -Long-Term Trends:

  
  

  Examining growth rates over time reveals economic patterns and trends.

  
  

  Long-term analysis can identify periods of economic expansion, recession, or stagnation.
• Understanding of Purchasing Power Parities (PPPs) and Their Use in International Comparisons

  PPPs are exchange rates that equalize the purchasing power of different currencies for a common basket of goods.

  
  

  They account for price differences between countries and facilitate meaningful international comparisons.
• Limitations of Using GDP to Compare Living Standards (1)

  -Income Distribution:

  
  

  GDP per capita does not account for income inequality, and a high GDP may conceal disparities in living standards.

  
  

  -Non-Market Activities:

  
  

  GDP excludes non-market activities like household labour and informal economies, leading to an incomplete picture of living standards
• Limitations of Using GDP to Compare Living Standards (2)

  -Quality of Life:

  
  

  GDP does not measure factors such as healthcare, education, environmental quality, and overall well-being

  
  

  -Negative externalities

  
  

  -Economic growth can cause inequalities in income and wealth within a country
• National happiness (1)

  -UK National Wellbeing:

  
  

  -A Measure of national wellbeing to complement GDP.

  
  

  -These measures consider factors like life satisfaction, mental health, and social connections.
• National happiness (2)

  Relationship Between Real Incomes and Subjective Happiness:

  
  

  Research suggests that while higher incomes are associated with increased happiness up to a point, the relationship between income and happiness diminishes beyond a certain income level.
• Factors that affect happiness

  -Income

  -Quality of work

  -Welfare of family members

  -Quality of consumption