Uses of national income data

• What does GDP stand for?

  Gross Domestic Product
• What does GDP measure in an economy?

  The quantity of goods and services produced
• What does a rise in economic growth indicate?

  There has been an increase in national output
• How does economic growth affect living standards?

  It leads to higher living standards and more employment opportunities
• What is real GDP?

  The value of GDP adjusted for inflation
• If the economy grew by 4% and inflation was 2%, what was the real economic growth?

  2%
• What is nominal GDP?

  The value of GDP without being adjusted for inflation
• Why can nominal GDP be misleading?

  It can make GDP appear higher than it really is
• What does total GDP represent?

  The combined monetary value of all goods and services produced within a country’s borders during a specific time period
• What is GDP per capita?

  The value of total GDP divided by the population of the country
• Why is GDP per capita useful?

  It measures the average output per person in an economy
• What are the two additional measures of national income besides GDP?

  • Gross National Product (GNP)
  • Gross National Income (GNI)
• What is Gross National Product (GNP)?

  The market value of all products produced in a year by the labor and property supplied by the citizens of one country
• How does GNP differ from GDP?


  GNP includes products produced by citizens of a country, whether inside the border or not
• What is Gross National Income (GNI)?

  The sum of value added by all producers who reside in a nation, plus product taxes minus subsidies, plus receipts of primary income from abroad
• What limitation does GDP have when comparing living standards between countries?

  It does not give any indication of the distribution of income
• Why might GDP need to be recalculated in terms of purchasing power?


  To account for international price differences
• What determines purchasing power?

  The cost of living in each country and the inflation rate
• What is a limitation of GDP regarding hidden economies?

  Large hidden economies, such as the black market, are not accounted for in GDP
• What does GDP fail to indicate regarding welfare?

  It gives no indication of welfare
• What is the importance of using purchasing power parity (PPP) exchange rates?

  • Estimates how much the exchange rate needs adjusting
  • Ensures exchanges between countries are equivalent according to purchasing power
  • Minimizes misleading comparisons between countries

  
• How does purchasing power parity (PPP) work with an example of a car's price?

  If a car costs £15,000 in the UK and the exchange rate is 1.5 £ per $, then it should cost $10,000 in the US
• What is the benefit of making international comparisons using PPP?

  It helps to minimize misleading comparisons between countries