Economic Growth

• What does GDP measure?

  Value of output by production factors
• What does GDP include regarding foreign ownership?

  Production plants located in the country
• What is the relationship between national output, national expenditure, and national income?

  • National output = National expenditure = National income
• What does GDP stand for?

  Gross Domestic Product
• What does nominal GDP measure?

  Value of national output at current prices
• What is a limitation of nominal GDP?

  It doesn't adjust for inflation effects
• Why is real GDP considered more accurate?

  It accounts for inflation effects
• What is the formula for real GDP?

  Real GDP = Nominal GDP / Price index x 100
• What does a price index measure?

  Overall level of prices in an economy
• How is GDP per capita calculated?

  GDP divided by population
• What does a higher GDP per capita indicate?

  Increased standard of living for the population
• What does GNI stand for?

  Gross National Income
• What does GNI include?

  Income earned by a country's resources abroad
• What are remittances?

  Money sent home by workers abroad
• Why are remittances not included in GDP?

  They are transfer payments with no output
• What was the growth of remittance flows in 2023?

  1.6% to $857 billion
• What is the difference between volume of output and value of output?

  • Volume of output: Quantity of items produced
  • Value of output: Market value of items produced
• How can volume of output be misleading?

  Value could fall even if volume rises
• What is the informal economy also known as?

  Shadow economy or black market
• What is a limitation of GDP per capita regarding inequality?

  It may not reflect income distribution
• How can GDP per capita mask living standards?

  Rising population may hide output increases
• What is an index number?

  A figure reflecting price or quantity
• How is an index number calculated?

  Current figure divided by base figure x 100
• What is the formula for real value?

  Real value = (Index of comparison x nominal value) / Index of current
• What does purchasing power parity (PPP) measure?

  Currency conversion rate for equal goods
• Why is PPP important for international comparisons?

  It accounts for exchange rate fluctuations
• What factors contribute to the happiness ranking?

  GDP per capita, life expectancy, social support
• What makes GDP per capita less reliable in measuring living standards?

  High levels of income inequality
• Why do some contributions to GDP increase living standards more than others?

  Because they have varying impacts on welfare
• What does the failure to include the shadow economy do to GDP measurements?

  It understates the level of GDP
• What type of output is not included in GDP but contributes to welfare?

  Non-marketed output/informal economy
• How do pollution and congestion affect quality of life?

  They reduce quality of life despite economic growth
• What factors are not included in GDP measures?

  Non-financial factors
• What assumptions are made about real GDP per capita and happiness?

  Higher real GDP leads to increased happiness
• Why might more purchasing power not lead to increased happiness?

  Happiness may not correlate with purchasing power
• What does the Easterlin paradox suggest about happiness and income over time?

  Long-term happiness and income growth are unrelated
• What does Richard Easterlin argue about life satisfaction and average incomes?

  Life satisfaction rises with average incomes up to a point
• What is the principle reason for the contradiction in happiness and income growth?

  Social comparisons affect perceived happiness
• How do expectations adjust over time regarding living standards?

  Higher standards become the norm, affecting happiness
• What is the circular flow of income?

  • Flow of money between households and firms
  • Independence of product and resource markets
  • Injections and withdrawals affect the economy