Economic Growth

Economic Growth

1. A rise in real GDP

2. Gross Domestic Product

   • Measures quantity of goods and services produced in an economy.
   • Real GDP = Adjusted for inflation
     • Nominal GDP = Not adjusted for inflation
       • Total GDP = Combined monetary value of all goods and services being produced within a country's borders during a specific time period
         • GDP per capita = Value of total GDP divided by population of the country. Average output per person in economy
   • Doesn't give indication of distribution of income. Two countries with similar GDP per capita may have different distributions which lead to different living standards in the country.
     • May need to be recalculated in terms of purchasing power so it can account for international price differences. PP determined by cost of living in each country, and inflation rate.
       • GDP gives no indication of welfare. Other measures e.g. Happiness Index, might be used to compare living standards instead or in conjunction with GDP
     • Large hidden economies e.g. black market which are not accounted for in GDP, can make comparisons misleading and difficult to compare

3. Gross National Product - Market value of all products produced per annum by labour and property supplied by citizens of one country.

   • Total GDP +( Income earned on overseas assets - Income earned by overseas residents)
     • GDP in country whilst GNP includes products produced by ALL citizens of a country

4. Gross National Income - Sum of value added by all producers who reside in a nation, plus product taxes(subtract subsidies) not included in the value of output, plus receipts of primary income from abroad( compensation of employees and property income)

5. Purchasing Power Paritiy(PPP)

   • Estimates how much exchange rate needs adjusting so an exchange between countries is equivalent, according to each currency's purchasing power.
     • E.g. £15000 car, exchange rate between UK and US is 1.5 £ per $ then in US car = $10000
       • Helps minimise misleading comparisons between countries

6. National Happiness

   • In UK 2012 - 91% people satisfied with their family life. Iceland 95%. Greece has lowest satisfaction - debt
   • UK economy grew by 5% in GDP per capita between 2007 and 2014 but showed no change in life satisfaction. However, higher GDP per capita = higher average life satisfaction score