ECONOMIC GROWTH 2.1.1

• What is economic growth defined as?

  Rate of change of output
• What does economic growth indicate about a country's productive potential?

  It shows an increase in goods and services
• How is economic growth typically measured?

  Percentage change in real GDP per annum
• What does a shift of the PPF represent?

  Increase in productive capacity of the economy
• What does GDP stand for?

  Gross Domestic Product
• What does GDP measure?

  Total value of goods and services produced
• What does GDP indicate about a country?

  Standard of living in a country
• What is the difference between total GDP and GDP per capita?

  Total GDP is overall, GDP per capita is per person
• When does GDP per capita grow?

  When national output grows faster than population
• What is the difference between real GDP and nominal GDP?

  Real GDP adjusts for inflation, nominal GDP does not
• How can real values be described?

  As the volume of national income
• What do nominal values represent?

  Monetary cost of the national income
• How do you calculate nominal GDP?

  Multiply price by quantity for each year
• How do you calculate real value of GDP using index of comparison and current, current and nominal?

  Real value = (index of comparisonBASE year/index of current year) x nominal value in current year

  
  

  (to work out nominal value:

  nominal value = (index of current year/index of comparisonBASSE year) x real value in current year
• What does GNI stand for?

  Gross National Income
• What does GNI include?

  Goods, services, and net overseas payments
• How does GNP differ from GDP?

  GNP includes overseas production by citizens
• What does comparing national income levels over time show?

  Whether the country has grown or shrunk
• Why is it important to use real, per capita figures?

  To accurately reflect living standards
• What does inflation do to GDP figures?

  It can give a false impression of growth
• Why is GDP per capita used for comparisons between countries?

  It accounts for population differences
• What do Purchasing Power Parities (PPP) compare?

  Cost of a typical basket of goods
• How do PPPs help in comparing living standards?

  They account for cost of living differences
• What happens to the difference in GDPs when using PPP?

  It becomes smaller between rich and poor countries
• What is the Big Mac Index?

  It compares the cost of a Big Mac globally
• What are some problems with using GDP to compare living standards?

  Data inaccuracy and hidden markets
• What is a hidden market?

  Work without declaring income to avoid tax
• Why might GDP underestimate economic activity?

  It excludes home-produced services
• What can errors in calculating inflation rates affect?

  Accuracy of real GDP calculations
• Why is it difficult to compare GDP over time?

  Methods of calculation may change
• What are transfer payments?

  Payments without corresponding output increase
• How can income distribution affect GDP comparisons?

  Growth may benefit only one group
• How has the quality of goods and services changed over time?

  It has improved significantly
• What issue arises from comparing different currencies?

  Which unit to use for comparison
• How can defense spending affect GDP?

  It can increase GDP without improving living standards
• What other factors are involved in living standards?

  Education and health among others
• What did the UN happiness report identify as key factors affecting welfare?

  Real GDP per capita, health, life expectancy
• What did the UK Prime Minister launch in 2010?

  Measuring National Wellbeing report
• What four key questions are asked in the Measuring National Wellbeing report?

  Life satisfaction, anxiety, happiness, worthwhileness
• How often is the Measuring National Wellbeing report updated?

  Quarterly basis