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Theme 2
2.1 Measures of economic performance
2.1.1 Economic growth
GDP
Def: The total value of goods and services produced in the UK over a
year
*Higher GDP = UK economy performance good
GDP per capita
Def: GDP / population
*Higher GDP per capita = higher living standard
Gross National Income (GNI)
Def: The total value of goods and services produced in the UK within a
year with net property abroad
PPP
The price of one countries currency in terms of another when comparing
the price of a basket of good in terms of another country
Pros: easier to compare living standards between countries
Economic growth
Def: The increase in the size of a country’s GDP
Limitations:
1) Ignore non market transactions e.g. farmers, homeworking Coz GNI and GDP
bad bad, so use HDI
2) Ignore inequality
to measure
3) Ignore quality of goods and services economy dev.
4) Underestimate quality of life
5) Composite of spending e.g. could be on national defense no benefit at
the moment but occupy high GDP percentage
Index number:
3% rise in real GDP = 103
Factors for SR growth: (actual growth)
1) Expansionary policies + monetary policies
, 2) Supply side policies
Factors for LR growth: (potential growth) ****can be shown by PPF
1) Factors of production
A) Land
E.g. land restriction, discover new resources
B) Capital
E.g. decrease corporation tax, increase FDI, capital allowances, technology
C) Labor
E.g. relax migration policy
D) Enterprise
E.g. grants for R&D, training programs
2.5.3 Trade (business) cycle
Peak/boom recession trough (a prolonged and deep downturn in the economy where the
world’s real GDP fall by at least 10% over 2 years) recovery
Reason for recession (negative output gap):
COULD BE EVERYTHING ON C+I+G+X-M
2020 Pandemic UK recession, whereas countries like Ireland (5% growth) & Vietnam grew
strongly during pandemic
Reasons why economics boom comes to an end:
1. Demand pull inflation//cost push inflation bring own real incomes
expensive to buy houses
2. CB raise Ir to reduce inflationary pressure
3. External shock affecting demand for export
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