Measures of Economic performance

GDP definition

The total value of goods and services produced in the economy over a period of time

What does the national income measure?

economic activity and provides insight into how a country is performing

What are the 2 ways to measure GDP?

the expenditure approach and the income approach

Whats the expenditure approach?

adds up the value of all expenditure in economy

Whats the income approach?

adds up the rewards for the factors of production used

What is nominal GDP?

the total value of goods and services produced in an economy that hasn’t been adjusted for inflation

What is real GDP?

the total value of goods and services produced in an economy and adjusted for inflation

Equation for GDP per capita

GDP / population

Who’s income does GDP measure?

the people within the countries borders

What does GNI measure?

the income earned by citizens operating outside of the country

What does PPP stand for?

Purchasing Power Parities

Whats PPP?

makes a more accurate standard of living comparison between countries

What’s GNP? (gross national product)

The total values of goods and services produced in an economy over a period of time through labour in the country and overseas

What are the limitations of using GDP for comparison - all factors

lack of info on inequality, quality of goods/services, doesn’t include voluntary work, differences in hours worked, environmental factors

lack of info provided on inequality - limitations of GDP

• The distribution of income in an economy is provided as an average 

• The differences in the standard of living within the same country can be significant

doesn’t include voluntary work - limitations of GDP

If it included voluntary/unpaid work, then GDP/capita would be higher

environmental factors - limitations of GDP

• GDP does not capture the environmental and health impacts of generating the income within a country (externalities)

• In one country, where there are fewer externalities in generating the income, the standard of living would be higher

What are the 6 factors affecting national happiness?

• GDP/capita

• health

• life expectancy

• trust

• freedom of choice

• generosity