Studied by 0 peopleWhat is GNP? ( GROSS NATIONAL PRODUCT)
Is the value of goods and services over a certain time period produced by all UK citizens. This could be both overseas UK citizens and minus other nationals working in the UK. measures the value of all products produced by a given country
Difference between GNP and GDP?
GDP measures the production of all goods and services produced in the UK. it does not take into account whether there are other UK citizens around the world producing output or minus the non UK citizens producing output in the UK.
Why is GNP more accurate than GDP ?
in some countries a lot of value and income earned from the output of the country leaks out of the economy to different countries.
so GNP can accurately
what are the 4 main Macro economic objectives
economic growth - should be stable and sustainable
low unemployment
low inflation
Balance of payments
what is GNI ?
This is the GDP plus net income paid into a country by other countries. e.g. interest dividends
This calculated subtracting profits and incomes from that goes abroad from foreign- owned companies add incomes and profits earned overseas from locally earned firms
What is GDP ?
the market value of all finished goods and services produced in an economy in a given time period
it is also the sum of all income earned in a country in a year and the sum of all expenditure.
This does not include earning by residents outside the country
What is the equation for growth rate ?
(GDP in yr2 - GDP in yr2 / GDP in yr1) Ă— 100
How does inflation effect money ?
It causes the purchasing power of money to erode
What are the important 4 features of economic growth ?
economic growth does not occur in a linear fashion but in an economic cycle
average UK growth is 2.5%
periods of rapid growth e.g. boom is about 3.5%
periods of negative growth called recession - 2 consecutive quarters of negative growth
What is GDP per capita ?
This is GDP per head, GDP divided by the population it allows countries to compare the standards of living withing the
What is an economic cycle and what does it represent ?
This is a diagram that represents the circular movement of an economy as it moves from expansion to contraction/ recession and back again
what is production ?
The value of a good and service produced in a given time period
What is productivity ?
This is usually measured by the output per worker/ output per worker per hour.
What is actual economic growth ?
is an increase in real incomes or real GDP
What is potential economic growth ?
is an increase in the productive capacity in a country’s productive capacity. It can be used to show an economy is performing relative to its output capacity
What are the causes of economic growth ?
increase in
labour supply
investment
productivity
what is the negative output gap ?
This is the difference between actual economic growth and potential economic growth
which three flows does the government measure when trying to calculate GDP?
Output
income
expenditure
An increase in GDP is a sign that a country is experiencing increasing incomes, output and spending
this implies that there is a higher standard of living because people can have more goods and services
Why is GDP not good at measuring higher standards of living ?
this is because people who earn more may be as a result and have more work pressures or that they have a higher cost of living e.g. increased mortgage payments .
there may be a range of external costs which could be caused.
what is a real measure in econ (real gdp)
real values - these are values that have been adjusted for inflation. this removed by using an index number that represents a change in prices and the results are called constant values
what is a nominal measure in econ (nominal GDP ) ?
values that are measured in money terms. theses are the adjusted current values
Why is having real values so important in measuring economic growth
because GDP is virtually useless if not accounted for inflation. this is because it could give a false narrative for example if inflation is 2% and the wage rise is 2% there has not been an increase or even a change in salary
Why are values looked at when measuring economic growth rather than volume ?
this is because forms may achieve a higher sales figure because they sell a larger number of products but if those sales are worth less per unit then they are not seeing an increase in value per output .
e.g. germany is the biggest exporter of goods by value whilst china is by volume
What factors could determine the difference in the rates of growth between countries
how well of the country is in the first place i.e. their GDP
how much of the output is self consumed - so doesn’t appear as GDP
methods of calculation and reliability of datar
relative exchange rates- do they represent the purchasing power of the local currency
composition of gov spending - is money spent on warfare or other areas that directly effect the quality of life e.g. education
what us the equation for working out real GDP/measure for inflation
( nominal GDP/ price index ) x 100
What is purchasing power parties ?
this is when the values / prices are expressed in accordance with the amount that the currency will buy in a local economy/ typical basket of goods
what does the term, GDP at PPP mean
this means that the exchange rate used is the one where the same basket of goods can be bought in the UK and the US at this rate of currency exchange e.g. if the cost of living was high we would expect the PPP value of GDP would be lower
what are the limitations for using GDP to compare the standard of living between countries
subsistence, barter and a hidden economy
if farmers consume their own output, if goods are traded without a price system (barter) or if goods are paid without being declared for tax purposes national income will not truly effect the standard of living estimated size of UK economy is 7% whilst russie =50%, india =46%
what are the limitations for using GDP to compare the standard of living between countries
informal economy
some output is not recorded as it hasn’t been bought or sold but it is still an output i.e. a volunteer running a charity shop is an output of service but there is corresponding income
what are the limitations for using GDP to compare the standard of living between countries
currency values
their is a difficulty in knowing whether to use the official value of currency ( exchange rate) or the purchasing power of parity
what are the limitations for using GDP to compare the standard of living between countries
income distribution
when comparing countries, income per head, some sense of income distribution should also be taken into account
in some countries large proportions of income are earned by very few, which makes the mean income higher than what’s enjoyed by the average person. - general standard of living can appear higher than in reality
what are the limitations for using GDP to compare the standard of living between countries
size of the public sector
if much of the spending in the economy is by the government, it might/might not improve welfare for the population.
this is around 40% of the UKs GDP but in developing countries it is significantly less e.g.g 20% of their economy
what are the limitations for using GDP to compare the standard of living between countries
consumer and capital spending
spending on investment goods might mean standard of living increases in the future but at the expense of standards of livings today,
it is better to take into account future growth patterns rather than simply considering today’s income
what are the limitations for using GDP to compare the standard of living between countries
quality issues
spending on schools might be high but how can the quality be measured
rising real incomes may be associated with factors which may reduce living standards e.g. air and noise pollution
How do these limitations affect the comparison of living standards between each country
this means that the comparisons are likely to be inaccurate if they are based solely on GDP. however real incomes growth per head is a good guide to actual growth if these other factors are taken into account
What is national happiness and how is it used ?
this is a response to the limitations of GDP as it does not only focus on the monetary variables GNH the gross national happiness index has been designed to be an attempt as an indicator that measures the quality of life in a more holistic and psychological terms of quality of life however only been used in bhutan
in the UK the ONS calculates the national well being reports on progress
What is the Easterline Paradox ?
this is the idea that happiness rises with average income but only until a certain point. beyond this marginal gains in happiness falls maybe because ppl care about relative incomes (compared to other people) aswell as absolute income (just how much the individual themselves make
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