2.1.1 Economic growth

• Economic growth


  Short-run: The actual annual percentage change in real national output

  Long-run: An increase in the potential productive capacity of the economy
• Measuring economic growth


  Short-run: The annual percentage change in Real National Output or Gross Domestic Product (GDP)

  Long-run: The maximum potential output of the economy using all factor resources as illustrated on the Production Possibility Frontier
• Gross Domestic Product (GDP)


  The value of goods and services produced in the economy over a period of time
• Real Gross Domestic Product

  The value of goods and services produced in the economy over a period of time taking into account inflation
• Nominal value


  Expressed in monetary terms, does not take into account inflation
• Real value


  Takes into account inflation
• Total National Income


  The value of all goods and services produced in a country
• Per Capita Income


  Total income divided by the number of people in the country
• Volume


  The quantity of goods and services produced in a country
• Value


  The monetary worth of the goods and services produced in a country
• Gross National Product (GNP)


  The value of all goods and services produced by domestic businesses both at home and abroad, so it includes overseas assets
• Gross National Income (GNI)


  A country's total level of income
• Purchasing Power Parities (PPPs)


  A method that allows us to look at the relative value of different currencies by taking real GDP and dividing it by the number of people within the country, then converting the income into dollars to allow a comparison between all countries around the world
• Real GDP per capita and economic growth are used to compare living standards between countries
• Problems with using GDP to compare living standards

  • Accuracy of statistics (e.g. changing population)

  The shadow economy is not included

  Transactions without a monetary value (e.g. housework)

  Negative externalities (e.g. pollution) are not taken into account

  Economic growth can cause inequalities in income and wealth
• Developing countries often consume what they produce and don't offer it for sale on the market, so it has no monetary value
• Developed countries often increase incomes at the expense of quality of life (e.g. stress, long working hours, congestion)
• Developing countries might wish to achieve growth at the expense of health and safety
• Factors that impact on happiness

  • Real GDP per capita

  Healthy life expectancy

  Having someone to count on

  Perceived freedom to make life choices

  Freedom from corruption

  Generosity
• Big Seven Factors affecting happiness

  • Family relationships

  Financial situation

  Work

  Community and friends

  Health

  Personal freedom

  Personal values