Measuring Economic Growth

Suggest several things that GDP and GDP per capita figures might not take into account

- The extent of the hidden economy (economic activity that doesn't appear in official figures - Public spending (some governments may provide more benefits than others - The extent of income inequality

What are the 4 main macroeconomic indiators?

1) The rate of economic growth 2) The rate of inflation 3) The level of unemployment 4) The state of the BofP

Output can be measured in 2 ways. What are these?

1) Volume - Adding up the quantity of goods and services produced in one year 2) Value - Calculating the value (billion£) of all the goods and services produced in one year

A high GDP would suggest...

A country's economic performance is strong

A high GDP per capita would suggest...

A country's standard of living is high

What is the formula used to measure the rate of economic growth overtime as a %?

Change in GDP (Billions) / Original GDP (Billions) x100

How are GNI and GNP calculated?

Countries Population / GNI or GNP

How can economic growth be measured?

Economic growth can be measured by the change in national output over a period of time

Real GDP

Economists remove the effect of inflation. E.g a 4% increase in the nominal GDP during a period when inflation was 3% means real GDP only rose around 1%. The other 3% was due to rising prices

National Output is usually measured by value. What is this called?

GDP (Gross Domestic Product)

What does GDP measure?

GDP measures the change in the amount of goods and services produced between one year and the next

Recession

If there's negative econ growth for 2 consecutive quarters

What are index numbers useful for?

Index numbers are useful for making comparisons over a period of time

What does the use of PPP to compare countries living standards involve?

Involves adjusting the GDP per capita figures to take into account the differences in purchasing power in those countries, with the results usually expressed in dollars. This makes for a more easier and accurate comparison

Boom

Long periods of high economic growth rates

What do index numbers represent?

Percentage changes

What is a long recession often referred to as?

Slump

National Output

The national output is all the goods and services produced by a country

Purchasing Power Parity (PPP)

The real value of an amount of money in terms of what you can actually buy with it. This can vary between countries, e.g. in a less developed country such as Malawi, $1 will buy more goods than in a more developed country such as the UK

GNP (Gross National Product)

The total output of the citizens of a country, whether or not they're resident in that country

What else can GNI and GDP be used for?

They can also be used to compare living standards between different countries

GDP can be used to give an indication of a country's living standards. How is this done?

This is done by dividing the total national output by the country's population to get the national output per person - GDP per capita

Nominal GDP

This is the name given to a GDP figure that hasn't been adjusted for inflation. The figure is misleading, it'll give the impression it's higher than it is

The rate of economic growth

This is the speed at which the national output grows over a period of time

GDP per capita formula

Total GDP / Population Size

Why may GDP not give an accurate picture of living standards?

When comparing living standards in countries that use other currencies, the exchange rate may not reflect the true worth of the 2 currencies

Economic Depression

Worse than a recession - It's a sustained economic economic downturn which lasts for a long period of time (several years)