2.1.1 Economic growth

• Gross domestic product (GDP): The total value of all final goods and services produced within a country in a given year, its measures the change of output in the economy shown as a percentage
• A slow down in GDP impacts consumers, businesses, government and employment. Consumer confidence falls, taxes increase and more benefits are paid out
• Interest rates, exchange rates, fiscals policies, trading conditions, price of commodities' and confidence can cause growth short term
• Long term factors affecting growth are investment, productivity, labour supply, research, innovation and enterprise
• Some benefits of growth are?

  low unemployment rates, increase in spending, greater consumer confidence and higher living standards
• what are limitations of growth?

  unfair wealth distributions, higher inflation, increase in demand and use of non-renewable resources
• What's the formula of real GDP?

  real GDP = (nominal GDP/price index) x 100
• What is nominal GDP?

  Only the number of goods and services produced, its hard to compare
• What is real GDP?

  The value of goods and services produced in a time period in a country that's adjusted for inflation
• Real GDP is a more accurate gauge of the change in production levels but nominal GDP is a better gauge for consumer purchasing power
• What is GNI?

  Gross national income, is GDP as well as net incomes from abroad
• Why is income from abroad contributed into GNI?

  Residents of some countries also receive some income from abroad and some income earned in the Uk may be send abroad
• What is GNI per capita?

  Measure of wealth, per person, averaged out wealth per area, its a better way of comparing GNI across countries is to calculate the average level of GNI per capita
• What is GDP?

  Value of national output produced in a country; national income, nation output, national expenditure
• What's GNP?

  gross national product is GPD + net property income from abroad
• Why is GDP not entirely accurate?

  Wealth is unevenly distributed meaning some may not benefit from the increase in growth, it also doesn't take into account the informal economy which are transactions that avoid government regulation, taxation or observation
• What does the informal economy include?

  production of legal goods eg. cash in hand

  production of illegal goods eg. drugs

  Informal household economy eg. homegrown veg being sold
• The informal economy makes tax revenue lower, the level of training for workers is lower, firms may also try to stay small to avoid government detection
• What is the size of the UK's informal economy?

  estimated to be 10.3% which is $358 billion in GDP levels
• The problem with a large shadow economy is loss of tax revenue, enables the consumption of illegal goods, low health and safety standards it also gives the government poor information which can lead to a distorted GDP
• What are some indicators of living standards?

  GNI per capita

  Purchasing power parity

  Disposable income
• What are the limitations of data income per head?

  changes in the distribution of income - relative poverty

  official data on incomes can be inaccurate - shadow economy

  regional and local variations in per capita income

  changes in length of working hours and job conditions

  problems in accuracy meaning a nations GDP may be inaccurate
• GDP cannot always be a perfect guide to living standards as it ignores wealth and income distribution, doesn't consider changing working hours also it ignores the shadow economy
• What is economic well-being?

  Overall quality of life and material prosperity enjoyed by individuals and households
• Economic well-being includes; income, consumption, access to basic services, wealth accumulation, job security, social safety nets and overall life satisfaction. Its crucial for understanding how policies are effective.
• What is economic growth?

  sustained growth of real GDP over time

  contributes to living standards

  long run increase in a countries productive potential
• What is economic welfare?


  Its a broader measure of well-being (social + economic)

  many aspects if well being are not material aspects of life

  may include inequality and median incomes
• What is the Easterlin Paradox?


  The Easterlin Paradox is the idea that there is no long-term relationship between economic growth and happiness.
• Within a society rich people tend to be much happier than poor people, this is the Easterlin Paradox
• Easterlin argued that life satisfaction does rise average incomes but only up to a certain point. Beyond that the marginal gain in happiness declines, relative income can weigh heavily on peoples mind
• What are the problems with using GDP to measure living standards?

  quality of life not taken into account

  voluntary activities not taken into account

  pollution is caused by growth

  the shadow economy not included
• What are some alternatives to real GNI per capita?

  Happy planet index

  Genuine progress indicator

  OECD better life index

  Human development index
• What are some strategies to improve living standards?

  Improving human capital

  Incentives to increase employment

  A living wage to boost productivity

  Accessible and high quality public services

  Better/affordable housing

  Wealth from successful businesses