Economics (Macro)- Measures of Economic Performance (2.1)
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Economics - Measures of Economic Performanc
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Economics - Measures Of Economic Performanc
Economics (Macro)- Measures of Economic Performance
(2.1)
2.1.1 Economic growth
a) Rates of change of real Gross Domestic Product (GDP) as a measure of economic growth
An increase in GDP means economic growth. Economic growth is the rate of change of output. It is an
increase in the long ...
Economics (Macro)- Measures of Economic Performance
(2.1)
2.1.1 Economic growth
a) Rates of change of real Gross Domestic Product (GDP) as a measure of economic growth
An increase in GDP means economic growth. Economic growth is the rate of change of output. It is an
increase in the long term productive potential of the country which means there is an increase in the
amount of goods and services that a country produces. This is typically measured by the percentage
change in real GDP per annum . It can also be shown through the shift of PPF.
2.1.1 Economic growth
b) Distinction between:
-real and nominal
-total and per capita
-value and volume
Nominal values take numbers (i.e. prices) on the day into account. Real values take numbers (i.e. prices)
on the day while accounting for inflation
Total is the total whereas per capita is the total/the population
Volume x Price = Value
2.1.1 Economic growth
c) Other national income measures: Gross National Income (GNI)
Gross National Income is the value of goods and services produced over a period of time (GDP) + net
overseas interest payments and dividends (factor incomes)
GDP + Value paid in by other countries
2.1.1 Economic growth
d) Comparison of rates of growth between countries and over time
You can compare different countries' economic growth but remember-
Countries have different populations so having a lower GDP does not necessarily mean a lower standard
of living. GDP per capita (and PPP's) is needed to compare standards of living
There may be an increase in GDP based on inflation so you must use real values, not nominal values
2.1.1 Economic growth
e) Understanding of Purchasing Power Parities (PPPs) and the use of PPP-adjusted figures in
international comparisons
PPP rate is an exchange rate which takes into account the cost of an identical basket of goods in each
country. If a basket of goods is worth $5 in America and 17 RMB in China, the ratio is 1 : 0.29 so at
500,000 RMB, 0.29 x 500,000 = $147,000
2.1.1 Economic growth
f) The limitations of using GDP to compare living standards between countries and over time
, Countries have different populations so having a lower GDP does not necessarily mean a lower standard
of living. GDP per capita (and PPP's) is needed to compare standards of living
There may be an increase in GDP based on inflation so you must use real values, not nominal values
2.1.1 Economic growth
g) National happiness:
-UK national wellbeing
-The relationship between real incomes and subjective happiness
UK national well-being is measured by the UK National Well-being Programme which measures the
progress of the UK's quality of living. It looks at the economy, personal finance and satisfaction with
income, where people live and how safe it is, employment, health and life expectancy, education and
personal wellbeing.
As real incomes increase, happiness increases until it begins to plateau
2.1.2 Inflation
a) Understanding of:
-inflation
-deflation
-disinflation
Inflation is the sustained rise in general prices and the decrease in the value of money
Deflation is sustained drop in general prices and the increase in the value of money
Disinflation is a decrease in the rate of inflation
2.1.2 Inflation
b) The process of calculating the rate of inflation in the UK using the Consumer Prices Index (CPI)
Inflation rate = ((cost of a basket of goods [today] - cost of a basket of goods [in the base year])/cost of a
basket of goods [in the base year]) x 100
2.1.2 Inflation
c) The limitations of CPI in measuring the rate of inflation
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