2.1.1 - economic growth

• Economic growth is the rate of change of output . It is an increase in the long term productive potential of the country which means there is an increase in the amount of goods and services that a country produces.
• Gross Domestic Product: The standard measure of output, which allows us to compare countries. It is the total value of goods and services produced in a country within a year.
• Problems of using GDP to compare standard of living:

  • Inaccuracy of data
  • Inequalities
  • Quality of goods and services
  • Comparing different currencies
  • Spending
• Inaccuracy of data of GDP:

  • Some countries are inefficient at collecting or calculating data and therefore comparisons can become less effective.
  • There is a ‘ hidden’ or ‘black’ market in which people work without declaring their income to avoid tax
• Purchasing Power Parities is an exchange rate of one currency for another which compares how much a typical basket of goods in the country costs compared to one in another country.
• Real values adjust for inflation and reflect changes in the quantity of goods and services produced.
• Nominal values do not adjust for inflation and represent current market prices.
•  Total values represent the aggregate sum of a variable for a given population or area.
• Per capita values represent the average amount per person and are calculated by dividing the total by the population.
• Value represents the monetary worth of goods and services produced.
•  Volume measures the physical quantity of goods and services produced, disregarding their monetary value.
• Gross National Income (GNI)

  • GNI includes the total income earned by a country's residents and businesses, both domestically and abroad.
  • It is a broader measure than GDP and considers income earned from overseas investments and remittances.
• Limitations of Using GDP to Compare Living Standards

  1. Income Distribution: GDP per capita does not account for income inequality, and a high GDP may conceal disparities in living standards.
  2. Non-Market Activities: GDP excludes non-market activities like household labour and informal economies, leading to an incomplete picture of living standards.
  3. Quality of Life: GDP does not measure factors such as healthcare, education, environmental quality, and overall well-being.
• Research suggests that while higher incomes are associated with increased happiness up to a point, the relationship between income and happiness diminishes beyond a certain income level