Chapter 8 - The level of overall economic activity

GDP

the market value of all final goods and services produced in a country over a time period (usually a year)

GNI

the total income received by the residents of a country, equal to the value of all final goods and services produced by the FOPs provided by residents regardless where the factors are located

Output Approach

measures the value of each good and service produced in the economy over a particular time period (usually a year) and then sums them up to obtain the total value of output produced

Why does output approach use final goods

in order to avoid double counting that would arise from including values of intermediate goods and services

Income Approach

adds up all income earned by the FOPs within a country over a time period (usually a year):

4 Factors of income

WIRP (wages, interest, rent, profits)

Nominal value

money value, or value measured in terms of prices that prevail at the time of measurement

Real value

a measure of value that takes into account changes in prices over time

per capita

per person in latin

the business cycel

consists of short-term fluctuations in the growth of real-output, which are alternating periods of expansion (increasing real output) and contraction (decreasing real output)

Why does higher GDP not necessarily mean that a country experiences higher economic wellbeing

national income statistics do not accurately measure the true value of output produced in an economy.

economing wellbeing is closely related to factors that GDP and GNI are unable to account for

Why NIS do not accurately measure the true value of output

• they don’t include non-marketed output

• they don’t include output sold in underground markets

• do not take into account quality improvements in goods and services

• do not account for value of negative externalities

• do not take into account the depletion of natural resources

Why NIS cannot accurately measure economic wellbeing

• make no distinctions about the composition of output

• cannot reflect achievements in levels of education, health and life expectancy

• provide no information on the distribution of income and output

• do not take into account increased leisure

• do not account for quality of life factors

Happiness Index

• Real GDP per capita

• social support

• healthy life expectancy

• freedom to make life choices

• generosity

• perceptions of corruption

Happy Planet Index

life expectancy X well-being X inequality of outcomes

divided by ecological footprint