2.2.1 - Economic growth

What is GDP or national income?

GDP is the value of goods and services produced by an economy over a period of time

Why can GDP be linked to economic growth?

Economic growth is a measure of how much GDP increases

What is the first way of measuring GDP?

Expenditure - Consumption + Government spending + Investment + (Exports - Imports)

What is the second way of measuring GDP?

Factor incomes - Income from people in employment (wages) + Profits of a private firm + Rent from the ownership of land

What is the third way of measuring GDP?

Value added from each of the main economic sectors - Primary + Secondary + Tertiary + Quaternary

What is does the term nominal mean?

The current monetary value non-including inflation

What does the term real mean?

The current monetary value taking into accounts of the effects of inflation

Therefore, what is the difference between nominal and real GDP?

They are both the market value of the final production of the goods and services within a country in a given time period, but nominal is evaluated at current market prices whereas real is adjusted for price changes that may have occurred over time

What is GNI?

Gross national income - All income made by residents of a country, regardless of where that income comes from - includes foreign aid and foreign direct investment

What is PPP?

Purchasing price parity is the amount of a country’s currency that is needed to buy the same quantity of local goods and services that can be bought with 1 Us dollar in the U.S.A

What is important about measuring GDP?

If GDP increases, that means the income of a country has increased, which means improved standard of living

GDP is an important indicator for when governments set policy

Economic growth can be compared across countries and economies

What are the limitations of measuring GDP to compare living standards across countries?

GDP does not include non-marketed output. In developing countries goods and services are produced and consumed within households without ever entering the market place

GDP does not include output sold in underground markets - includes legal transactions to avoid tax and illegal trade

GDP does not take into account improvements in quality of goods and services

GDP does not take into account the value of negative externalities