2.1.1 economic growth - theme 2 - the uk economy - performance and policies

economic growth

an increase in the long term productive potential of the country = there is an increase in the amount of goods and services that a country produces

economic growth leads to

higher living standards and more employment opportunities

economic growth occurs when

there is a rise in the value of gdp

GDP

measures the value of goods and services produced in an economy in a one-year period

difference between value and volume of gdp

value is monetary worth whereas volume is physical number

real gdp

GDP adjusted for inflation

nominal gdp

gdp not being adjusted for inflation

nominal gdp is misleading bc

it can make gdp appear higher than it really is

total gdp

combined monetary value of all goods and services produced within a country's borders during a specific time period

GDP per capita

GDP divided by population

volume of gdp

Real values of GDP; the size of the basket of goods

value of gdp

Nominal values of GDP; GDP at current prices

national income can be measured by

gross national product (GNP)

gross national income
(GNI)

GNP (Gross National Product)

gdp + income from abroad - income sent by non-residents to their home countries

GNI (Gross National Income)

measures the income earned by citizens operating outside of country + the gdp

PPP (Purchasing Power Parity)

theory that estimates how much the exchange rate needs adjusting so that an change between countries are equivalent

helps minimise misleading comparisons between countries

why is using real gdp better than using nominal

one country may have a much higher rate of economic growth but also a much higher rate of inflation. real gdp therefore provides better comparison

Limitations of using GDP

- problems of omissions
- problems of comparison
- problems of accuracy
- other factors

problems of omissions

there are things left out of the gdp
e.g shadow economy so gdp is underestimated
- non-marketed activity are not included e.g DIYs, cooking

problems of comparison

- nominal vs real, inflation defers, one adjusted to inflation one isnt
- comparison of output -> assumptions increase in gdp and standard of living
- per capita doesn't reflect on everyone

problems of accuracy

- large volume of data difficult to process
- LEDCs ->some less economically developed countries dont have ONS

other factors

- doesn't include political freedom, leisure time, environmental standarts
- doesn't include happiness

national happiness

measured in the UK by the office for national statistics (ONS)

ONS

office for national statistics

the UN happiness report found that 6 factors affect national well-being

1. real gdp per capita
2. health
3. life expectancy
4. having someone to count on
5. perceived freedom to make life choices
6. freedom from corruption and generosity

Easterlin Paradox

High incomes do correlate with happiness, but long term, increased income doesn't correlate with increased happiness

national income statistics

positive data

national happiness surveys

normative data