Measure in economic activity

Define Gross domestic product

Total spending on final goods and services produced in a country over a period of time. Expenditure approach.

GDP = C + I + G + (X - M)

Note: doesn’t include financial capital or social capitals.

Define Gross national income

Total income received by the residents of a country, equal to value of all final goods and services produced by FOP. Income approach

GNI = GDP + (Income from abroad - Income sent abroad)

Define Output approach

Measures value of goods and services produced

Define Nominal value

Value in terms of money, measured in terms of price at the time of measurement. Doesn’t account for changes in PL

Real value

Value that has eliminated influence of change in price value, compared purchasing power to a base year.

Per capita values

Total value / population

Purchasing power parity

Exchange rate between currencies that makes buying power of each currency equal to the buying power of US $1. Eliminates influence of price level differences between each currency

Price deflator

Used to find rGDP from nominal GDP.

Price deflator = 100* (nominal GDP) / (real GDP)

rGDP= 100* (nominal GDP) / (Price deflator)

Limitations of national income stats in measuring “true” value output (5)

• Do not include non-market output (eg. personal garden and home grown vegetables)

• Do not include output sold in informal markets

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

• Do not account for externalities (eg toxic waste)

• Do not account for depletion of natural resources

Limitations of national income stats in measuring well being

• Makes no distinctions about composition of output (eg. military goods vs merit goods have different affects on wellbeing)

• Cannot reflect achievements in levels of education, health, or life expectancy

• Provide no info on distribution of output and income

• Do no account for leisure

• Do not account for quality of life factors (crime rates, war, ect)

Define OECD better life index

Composite indicator that measures

Quality of life: state of health, work life balance, Education and skill, Social connections, Civic engagement/ governance, Environmental quality, Personal security, subjective well being

Material conditions: Income and wealth, Jobs and earning, Housing

Resources for well-being in the future: Natural, human, economic, social capital

define Happiness Index

Composite indicator that measures

• rGDP per capita ppp

• Social support

• Healthy life expectancy

• Freedom to make life choices

• Generosity

• Perception of corruption

Define Happy planet index

Composite indicator that measures

HPI: (Life expectancy * well be-ing * Inequality of income) / Ecological footprint