PMT

• economic growth is an increase in the long term productive potential of a country
• economic growth means there is an increase in the amount of goods and services that a country produces
• GDP allows us to compare measure of output between countries
• GDP is the total value of goods and services produced in a country in a year
• GDP is an indicator of a country’s standard of living
• total GDP - overall GDP for the country
• GDP per capita: total GDP/population
• GDP per capita allows us to compare between countries with different population sizes - easy to compare between countries
• GDP per capita grows if national output is greater than the population. So, there is more goods and services to enjoy per person
• Real GDP DOESNT take inflation into account
• nominal GDP takes inflation into account
• Real values - VOLUME of something
• Nominal Values - VALUE of something
• GNI - value of goods and services produced in a country over a period of time plus net overseas payments
• GNI includes what a country earns from overseas and excludes what foreigners working in the country send back to their own country
• REMITTANCES sent home by migrant workers is not counted in GNI
• GNI is used more than GDP because of the growing size of migration which increases size of remittances and aid
• GNP - value of goods and services produced by citizens of a country, whether if they live outside or inside the country’s borders
• GDP is the value of all goods and services produced within a country’s borders
• increase in GNI - rise in living standards as people have access to more things
• Real GDP is used to measure growth because it strips the effects of inflation. Inflation can increase GDP without any more goods or services actually being produced
• an exchange rate of one currency for another compares how much a typical basket of goods in a country costs compared to another country
• Purchasing Power Parities compares the cost of living in different countries
• Example of PPP: Big Mac index to compare cost of Big Mac throughout the world
• some countries are inefficient at collecting data so using GDP to compare standard of living is problematic
• there are black markets in which people work without declaring their income to avoid tax and to continue claiming benefits. GDP doesn’t measure these incomes so makes it hard to compare standard of living using GDP
• GDP does not take into account home produced services (farmers consuming their own crop) because they aren’t traded. Makes GDP ineffective when comparing standard of living
• Different countries use different methods to calculate their GDP
• Transfer payments - when money is paid to a person without any increase in output of the economy (pocket money)
• An increase in GDP may be due to increase in incomes for one certain demographic, so living standards wont increase everywhere. Income inequality makes it difficult to use GDP to make comparisons of standard of living
• Increase in low incomes increases happiness but increases in high incomes wont necessarily increase happiness
• Purchasing power parities (PPPs) are the rates of currency conversion that try to equalise the purchasing power of different currencies
• inflation is the increase in the general price level. Inflation erodes the purchasing power of money
• Disinfaltion - fall in inflation relative to previous period
• Deflation - negative inflation
• CPI - weighted basket of goods to measure average household spending
• CPI is not representative of ever single good sold in the country
• One limitation of CPI is that different households spend different amounts of money on each good so CPI isn’t representative of average rate of inflation
• demand pull inflation caused when there’s an increase in AD
• Cost Push Inflation - decrease in AS pushes prices up. When cost of production increases, firms push up prices to maintain profit margins