economic growth

• What is the relationship between income, output, and expenditure in macroeconomics?

  They are equal: y=o=e
• How does GDP serve as a measure of growth?

  By measuring the final value of goods/services
• How does GDP serve as a measure of living standards?

  By indicating the total economic activity
• What does GDP measure?

  Final value of goods and services
• What are the limitations of using GDP as a measure of economic well-being?

  • Double counting
  • Informal activity (black markets)
  • Negative externalities
  • Income inequality
  • Output produced (benefits firms not consumers)
  • Other quality of life aspects (freedom, healthcare, inclusiveness)
• What is GDP per capita?


  Country's economic output per person
• How is GDP per capita calculated?

  GDP divided by population
• What are the limitations of using GDP per capita as a measure of economic well-being?

  • Remittances not counted
  • Influence of FDI
• What does GNI stand for?

  Gross National Income
• What is the formula for GNI?

  GNI = GDP + net factor income
• What does GNI measure?

  Total income generated by a country's factors
• What is included in GNI but not GDP?

  Income earned abroad by citizens
• What is subtracted from GNI compared to GDP?

  Income by foreign workers at home
• What is a limitation of GNI as a measure of economic well-being?

  Environmental costs not measured
• What is Green GDP?

  GDP accounting for environmental costs
• What is the formula for Green GDP?

  Green GDP = GDP - environmental costs
• Why is putting a monetary value on the environment difficult?

  Subjectivity and complexity of ecosystems
• Why might a country be hesitant to use Green GDP?

  It may cause GDP to fall dramatically
• What does PPP stand for?

  Purchasing Power Parity
• What is the concept behind Purchasing Power Parity?

  Goods should cost the same everywhere
• If a product costs £1000 in the UK and $1600 in the USA, what is the exchange rate implied by PPP?

  £1 = $1.60
• If a product costs £1000 in the UK and then the price in the USA rises to $1700, what happens to the nominal value of the pound?

  The pound has lost value
• According to the theory in the text, what happens if goods are cheaper for Americans?

  They will buy more dollars
• According to the theory in the text, what does an increase in demand for dollars mean for the pound?

  It brings the pound up
• What is Gross National Happiness a measure of?

  How happy a countries citizens are
• What is Gross National Happiness used to assess?

  How well the government are doing
• How does GDP rising impact citizens' wealth?

  More supply of jobs and wealth
• What is the positive wealth effect in the context of GDP?

  More money makes people feel wealthy
• What is the negative wealth effect in the context of GDP?

  Less money makes people feel less wealthy
• What is another name for informal activity in economics?

  Shadow economy
• What does it mean if a currency has lost value in 'nominal terms'?

  The exchange rate has changed