Measures Of Economic Performance 2.1

Define economic growth

an increase in the long term productive potential of the country which means there is an increase in the amount of goods and services that a country produces.

GDP

the total value of goods and services produced in a country within a year

Gross National Income

The value of goods and services produced by a country over a period of time plus net overseas payments

Gross National Product

the value of goods and services produced by a country's citizens, domestically and abroad.

Purchasing Power Parities

An exchange rate of one currency for another which compares how much a typical basket of goods in the country costs compared to one in another country.

Problems of using GDP to compare data

• increases in real GDP may not be shared equally among an economy’s population

• There is a ‘ hidden’ or ‘black’ market so GDP is underestimated because these incomes aren’t taken into account.

Easterlin Paradox

An increase in consumption 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

a sustained increase in the general price level

Deflation

a sustained decrease in the general price level

Disinflation

is a reduction in the rate of inflation i.e. prices are still rising but they are not rising by as much.

CPI

The CPI tracks the changing cost of a "basket" of goods and services over time, serving as a primary measure of inflation.

Limitations of CPI

• not totally representive

• doesn’t take in house prices

RPI

tracks the price changes of a "basket" of goods and services, including housing costs like mortgage interest and council tax

causes of inflation

• demand pull - an increase in AD in the economy

• cost push - rising production costs