2.1
ECONOMIC GROWTH
GDP AS MEASURE OF ECONOMIC GROWTH
GDP is the total monetary value of goods and services that a country produces
in its borders in a given time
economic growth is the increase of a country’s GDP over time
signifies expansion of a country’s production capacity
indicates economic health
CALCULATE
growth rate = change in GDP/original GDP x100
ECONOMIC MEASURES
REAL VS NOMINAL
Real - adjusts for inflation and shows the true cost of the goods
Nominal - current market price, including inflation
VALUE VS VOLUME
Value - the monetary worth of the goods and services produced
Volume - the physical quantity of the goods and services produced,
disregards money
TOTAL VS PER CAPITA
Total - value represents sum of a variable for given population or area
Per Capita - Value represents average amount per person
GROSS NATIONAL INCOME(GNI)
2.1 1
, total income earned by a country’s residents and business, domestically and
abroad
broader measure than GDP
considers income earned by overseas investments etc
COMPARING GROWTH RATES BETWEEN COUNTRIES
Cross country comparisons
comparing growth rates helps asses economic developement
highlights factors leading to growth
Long term trends
examining over time reveals patterns and trends
helps identify periods of economic expansion, recession or stagnation
PURCHASING POWER PARITIES (PPPs)
an exchange rate between currencies which compares the cost in each
country for a common basket of goods
IMPROVES ACCURACY WHEN COMPAING DATA
used to compare costs of living and buying power
LIMITATIONS OF GDP
INCOME DISTRIBUTION
GDP per capita does not take into account income inequality
may conceal disparities in living standards
increase in GDP may be one group of people, not nationally
NON MARKET ACTIVITIES
Excludes non market activities such as household labour, or black market
QUALITY OF LIFE
2.1 2
, does not measure healthcare, education, wellbeing
NATIONAL HAPPINESS
UK NATIONAL WELLBEING
uk has tried to measure national happiness to compliment GDP
considers mental health, life satisfaction, etc
INCOME VS HAPPINESS
increase inconsumption of material goods will increase happiness if basic
needs
aren’t met (shelter and food), but once these needs are met, an increase in
consumption won’t increase long term happiness.
INFLATION
KEY WORDS
INFLATION
the sustained increase of a price level of goods and services in an
economy over time
decreases purchasing power of money
INFLATION RATE = PERCENTAGE increase in price level in given time
DEFLATION
sustained decrease in general price level
indicates decreased rate of economic growth
increases purchasing power
DISINFLATION
when rate of inflation declines, but remains positive
prices rising at slower rate than before
2.1 3
ECONOMIC GROWTH
GDP AS MEASURE OF ECONOMIC GROWTH
GDP is the total monetary value of goods and services that a country produces
in its borders in a given time
economic growth is the increase of a country’s GDP over time
signifies expansion of a country’s production capacity
indicates economic health
CALCULATE
growth rate = change in GDP/original GDP x100
ECONOMIC MEASURES
REAL VS NOMINAL
Real - adjusts for inflation and shows the true cost of the goods
Nominal - current market price, including inflation
VALUE VS VOLUME
Value - the monetary worth of the goods and services produced
Volume - the physical quantity of the goods and services produced,
disregards money
TOTAL VS PER CAPITA
Total - value represents sum of a variable for given population or area
Per Capita - Value represents average amount per person
GROSS NATIONAL INCOME(GNI)
2.1 1
, total income earned by a country’s residents and business, domestically and
abroad
broader measure than GDP
considers income earned by overseas investments etc
COMPARING GROWTH RATES BETWEEN COUNTRIES
Cross country comparisons
comparing growth rates helps asses economic developement
highlights factors leading to growth
Long term trends
examining over time reveals patterns and trends
helps identify periods of economic expansion, recession or stagnation
PURCHASING POWER PARITIES (PPPs)
an exchange rate between currencies which compares the cost in each
country for a common basket of goods
IMPROVES ACCURACY WHEN COMPAING DATA
used to compare costs of living and buying power
LIMITATIONS OF GDP
INCOME DISTRIBUTION
GDP per capita does not take into account income inequality
may conceal disparities in living standards
increase in GDP may be one group of people, not nationally
NON MARKET ACTIVITIES
Excludes non market activities such as household labour, or black market
QUALITY OF LIFE
2.1 2
, does not measure healthcare, education, wellbeing
NATIONAL HAPPINESS
UK NATIONAL WELLBEING
uk has tried to measure national happiness to compliment GDP
considers mental health, life satisfaction, etc
INCOME VS HAPPINESS
increase inconsumption of material goods will increase happiness if basic
needs
aren’t met (shelter and food), but once these needs are met, an increase in
consumption won’t increase long term happiness.
INFLATION
KEY WORDS
INFLATION
the sustained increase of a price level of goods and services in an
economy over time
decreases purchasing power of money
INFLATION RATE = PERCENTAGE increase in price level in given time
DEFLATION
sustained decrease in general price level
indicates decreased rate of economic growth
increases purchasing power
DISINFLATION
when rate of inflation declines, but remains positive
prices rising at slower rate than before
2.1 3
