Economic Growth

• What is GDP

  The Value of all goods/services produced in an economy in a one-year period
• Explain the different between real GDP and Nominal GDPP, giving an example of where we might want to use each

  Real GDP adjust economic output for inflation, revealing actual growth or contraction - Use it to work out long term trends and policy making

  Nominal GDP measures output at current market prices - valuable for short-term analysis and revenue calculation
• Explain the difference between total and per capita GDP giving an example of where we might want to use each

  Total GDP takes no account of differences in population

  GDP per capita is the total GDP divided by the number of people in a country
• Explain the difference between value and volume of

  Value shows what certain goods are worth

  Volume shows number of goods produced
• Explain the difference between GNP and GNI

  GNI - The Value of goods and services produced over a period of time + net overseas interest payments and dividends

  GNP - The value of goods and services over a period of time through labour or property supplied by citizens of a country both domestically (GDP) and overseas
• Why must we be careful when comparing GDP across different countries

  GDP dosent account for Population differences, takes the average income
•  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 labor and informal economies, leading to an incomplete picture of living standards.
• Why must we be careful in comparing GDP over time

  If a country's population grows over time, then this may cause a rise in GDP without a rise in living standards and so provide inaccurate comparisons
• What is meant by Purchasing Power Parity

  theory that estimates how much the exchange rate needs adjusting so that an exchange between countries is equivalent, according to each currency's purchasing power
• Why might PPP be useful

  Knowing the PPP will allow you to track and predict exchange rate relationships. PPP can help you to examine the relative living conditions of different countries.
• How is the ONS national wellbeing indicator measured

  "life satisfaction", "feeling the things done in life are worthwhile", "happiness", and "anxiety"
• What does the Easterlin Paradox show

  Richard Easterlin argued that life satisfaction does rise with average incomes but only up to a point.
• Suggest why might this be the case - easterlin

   that someone's relative income can weigh heavily on people's minds
• Explain what happened to GDP and life satisfaction between 2007 and 2014

  The UK economy grew by 5% in GDP per capita between 2007 and 2014, but showed no change in life satisfaction.
• What does actual growth refer to?

  Yearly increase in real GDP
• How does actual growth reflect the economy's performance?

  It shows performance over a short period
• What does potential growth represent?

  Maximum possible output of an economy
• When does an economy achieve potential growth?

  When all resources are fully employed
• What does efficient operation of resources imply for potential growth?

  Resources are used without waste
• What are the key differences between actual and potential growth?

  • Actual growth: Yearly increase in real GDP
  • Potential growth: Maximum output with full resource employment
  • Actual growth reflects short-term performance
  • Potential growth indicates long-term capacity
• Actual growth is influenced by short-term factors (demand), whereas potential growth is driven by long-term factors (supply)
• disadvantages of a heavy reliance on export led growth as opposed to supply side growth

  Might lead to demand pull inflation and higher interest rates