NEWEST THEME 2

2.1.1

Real GDP- measures the amount of goods and services produced in an economy in a year.

Actual GDP- is an increase in real incomes or gross domestic product.

Potential economic growth - an increase in productive capacity of a country.

Real vs Nominal GDP- real GDP removes the effects of inflation while nominal does not.

Real GDP per capita= the total output produced in an economy in a year divided by the population.

Real GDP can be misleading because it ignores the size of the country’s population, using real GDP per capita avoids this problem. china has high real GDP but low GDP per capita.

2.1.1

GNI (gross national income) = GDP + net income from abroad.

GNI= GDP + remittances received - remittances sent)

remittances- money earned by workers which is sent home to family in another country.

Gross National Product = The estimate of the total of all the goods and services produced by a country in a given time period.

2.1.1 how to make comparisons of growth between countries over time

Changing national income levels will show us whether a country has grown or shrunk over time.

If a country population grows, may cause rise in GDP without rise in living standards, use real GDP to strip out effect of inflation.

2.1.1 purchasing power parities

An exchange rate of one currency for another which compares how much a typical basket of goods in one country costs compared to that of another country.

It is useful because it takes into account the cost of living which helps better compare living standards.

2.1.1 limitations of using GDP to compare living standards between countries and over time.

-Subsistence and hidden economy if farmers consume their own output, goods are traded without a price system or paid without declaring tax national income, not reflect true living standard.

-Inaccuracy of state as some countries can’t collect data efficiently which makes comparisons useless.

2.1.1 What is national happiness?

The overall wellbeing and satisfaction of a country’s population. - try to measure the quality of life.

UK PM launched a measuring national well-being report and found that self reported health, relationship and employment status most affected personal wellbeing.

-Happiness and income are positively related at lower incomes ( a poor person is happier if their income rises)

-happiness rises with average income only up to a point beyond which marginal happiness falls. Easterlin Paradox.