2.1.1 Economic growth

What is economic growth?

Increase in the productive potential of a country

What is GDP?

Total value of goods and services produced in a country within a year

What is GDP per capita?

Total GDP taking into account population

What’s the formula for GDP per capita?

Total real GDP/ Population

What’s real GDP?

GDP is inflation adjusted

What’s nominal GDP?

GDP which is not inflation adjusted

What are the national income measures?

• GDP (Gross domestic product)

• GNI (Gross national income)

• GNP (Gross national product)

What is GNI?

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

What’s GNP?

The value of goods produced by citizens whether they live in the country or not

Why are national income measures used?

• As comparison to other countries

• As judgements about economic welfare

Why is per capita used?

As then a difference in population doesn’t distort data

What is PPP?

How much units of one currency is needed to buy the exact same basket of goods in another

Why is PPP useful when comparing countries?

It takes into account cost of living

What are the problems of using GDP to compare standard of living?

• Inaccuracy of data (Black market)

• Inequalities (Increase in GDP may only be amongst one group)

• Quality of goods and services (Quality of goods can increase but GDP may fall)

• Spending (Some spendings increase standard of living but decrease GDP)

What are the factors that affect welfare?

• Health

• Life expectancy

• Real GDP per capita

What is the Easterlin paradox?

If your poor and your income increases you will be happier, if you are rich you are not necessarily happy and wont be happier with an increase in income

What is meant by happiness is dependent on who you are around?

If you are rich amongst poor people you will be happier. If you earn the same amount but are the poorest you will not be happier