2.1.1 Economic Growth

• What is economic growth measured by?

  GDP
• What does GDP represent?

  Total output of all UK businesses
• What are the three ways to calculate GDP?

  1. Total output of all businesses
  2. Total income of all production factors
  3. Total expenditure of consumers, businesses, and government
• What does a positive percentage change in GDP indicate?

  Growth in the economy
• What does a negative percentage change in GDP indicate?

  Contraction in the economy
• What is the formula for real value?

  $\text{Real value} =$$\frac{\text{index of comparison period}}{\text{index of current period}} \times \text{nominal value in current period}$
• What is the formula for nominal value?

  $\text{Nominal value} =$$\frac{\text{index of current period}}{\text{index of comparison period}} \times \text{real value in current period}$
• What does Gross National Income (GNI) account for?

  Investment income coming into and leaving a country
• How is net investment income calculated?

  Investment coming into country minus investment going out
• What is the relationship between GDP and GNI?

  GDP plus net investment income equals GNI
• Why do developed countries have lower rates of economic growth?

  They have larger outputs to measure growth
• Why do developing countries tend to have higher rates of economic growth?

  They have smaller outputs to measure growth
• What are Purchasing Power Parities?

  The rate to convert currency for equal goods
• What are the limitations of using GDP to compare living standards?

  1. Ignores income distribution
  2. Needs recalculation for purchasing power
  3. Excludes hidden economies
  4. No indication of welfare
• How does GDP ignore cost of living differences?

  It underestimates output in cheaper countries
• How does GDP ignore income distribution within a country?

  It does not account for regional income differences
• What is the effect of hidden economies on GDP?

  They lead to misleading GDP comparisons
• How does GDP ignore the effect of inflation?

  It does not adjust for price level changes
• What is the purpose of the UK national well-being measures?

  • To provide a wider picture of society
  • To assess standard of living
  • Includes factors like health and freedom
• What six factors affect national well-being according to the UN happiness report?

  Real GDP per capita, health, life-expectancy, support, freedom, generosity
• What was the GDP per capita growth in the UK from 2007 to 2014?

  5%
• What is the relationship between GDP per capita and life satisfaction?

  Higher GDP per capita generally leads to higher life satisfaction
• How does happiness relate to income at low levels?

  Happiness and income are positively related
• What happens to happiness once basic needs are met?

  Higher income does not increase happiness
• What is the difference between total GDP and GDP per capita?

  • Total GDP: overall GDP for the country
  • GDP per capita: total GDP divided by population
• When does GDP per capita grow?

  When national output grows faster than population
• What does real GDP account for?

  It strips out the effects of inflation
• How are real values described in terms of national income?

  As the volume of national income
• How are nominal values described in terms of national income?

  As the monetary cost of national income
• What is the relationship between the value and volume of national income?

  Value equals volume times current price level