notes

• How is the size of a country's economy measured?

  Using GDP
• What does GDP represent?

  Total value of goods and services produced
• When does economic growth occur?

  When there is a rise in real GDP
• What is GDP per capita?

  GDP divided by the population
• What is actual output in an economy?

  The current value of goods and services produced
• What is potential output?

  Total amount produced using all resources efficiently
• What is nominal GDP based on?

  The current price or value
• What does real GDP account for?

  Adjustments for inflation
• What were the nominal GDP values for laptops produced from 2011 to 2014?

  • 2011: £10,000
  • 2012: £13,200
  • 2013: £18,000
  • 2014: £30,000
• What were the real GDP values for laptops produced from 2011 to 2014?

  • 2011: £12,000
  • 2012: £13,200
  • 2013: £22,500
• What does GNI stand for?

  Gross National Income
• How is GNI calculated?

  GDP plus incomes into minus incomes out
• What does GNP stand for?

  Gross National Product
• How is GNP calculated?

  GDP plus incomes of nationals earned abroad
• What does GDP at PPP account for?

  Differences in the cost of a basket of goods
• How does rising GDP affect living standards?

  Incomes are likely to increase
• What happens to government tax revenue when GDP rises?

  It is likely to increase
• How does increased government revenue affect public services?

  It allows for more spending on services
• Why is GDP a useful measure for comparing living standards?

  Higher GDP often indicates higher living standards
• What is inflation?

  Increase in the general price level
• What is deflation?

  Decrease in the general price level
• What is disinflation?

  Average price rising at a slower rate
• What is the correct term for a 2% change in average price level in 2010?

  Inflation
• Why is deflation problematic?

  It delays consumption and investments
• What happens to firms' revenues during deflation?

  They decrease as prices fall
• How does deflation affect employment?

  Firms may lay off workers
• Why might GDP not accurately reflect living standards?

  It doesn't account for population size
• What is one limitation of GDP regarding informal markets?

  It doesn't include informal market activities
• How does government spending affect GDP?

  It can skew the measure of living standards
• How does rising GDP relate to happiness?

  It likely increases incomes and happiness
• What is the Easterlin Paradox?

  Happiness increases with income up to a point
• What can happen if people work harder for higher incomes?

  Stress levels may increase, reducing happiness
• What is underemployment?

  Working fewer hours than desired
• How is inactivity defined?

  Choosing not to work and not seeking work
• What is cyclical unemployment?

  Unemployment due to decreased demand for goods
• What is structural unemployment?

  Unemployment due to lack of skills for available jobs
• What is seasonal unemployment?

  Unemployment during certain parts of the year
• What is frictional unemployment?

  Temporary unemployment between jobs
• What is demand-pull inflation?

  Inflation due to increased aggregate demand
• What is cost-push inflation?

  Inflation due to increased production costs