Economics theme 2.1.1 Economic Growth
Limitations of Using GDP to Compare Living Stan
- Income Distribution: GDP per capita does not
income inequality, and a high GDP may conceal di
Distinction Between Economic living standards.
Rates of Change of Real GDP as a
Measures:
Measure of Economic Growth: 1. Real vs nominal - Non-Market Activities: GDP excludes non-mar
1. Economic growth - Real: Real values adjust for like household labor and informal economies, lead
- Economic growth refers to the increase inflation and reflect changes in the incomplete picture of living standards
in a country's real GDP over time quantity of goods and services
- It signifies an expansion of an produced - Quality of Life: GDP does not measure factors su
- Nominal: Nominal values do not healthcare, education, environmental quality, and
economy's production capacity and is a
adjust for inflation and represent well-being
key indicator of its overall economic
current market prices.
health
2. Total vs Per Capita
2. Measuring economic growth - Total: Total values represent the
- Economic growth is typically measured aggregate sum of a variable for a
by calculating the percentage change in given population or area. Gross National Income (GNI): The value of goods an
produced by a country over a period of time plus net over
real GDP over a specific period, such as - Per Capita: Per capita values
interest payments and dividends. This means that it adds
a year. represent the average amount per country earns from overseas investments and subtracts w
- The formula for growth rate is: Growth person and are calculated by foreigners earn in a country and send back home from the
Rate = [(GDP at Time 2 - GDP at Time dividing the total by the is affected by profits from businesses owned overseas and
population. remittances sent home by migrant workers. This is increa
1) / GDP at Time 1] × 100.
3. Value vs Volume used rather than GDP because of the growing size of remi
- Value: Value represents the and aid.
monetary worth of goods and Gross National Product (GNP): The value of goods a
services produced. services over a period of time through labour or property
by citizens of a country both domestically (GDP) and over
- Volume: Volume measures the
means it is the value of all the goods produced by citizens
physical quantity of goods and country, whether they live in the country or not, whilst GD
Comparison of Rates of Growth Between
services produced, disregarding value of all goods produced inside the country, whether th
Countries and Over Time
their monetary value. produced by citizens of the country or not.
1. Cross-Country Comparisons
- Comparing growth rates between countries
helps assess relative economic
performance.
Understanding of PPPs and Their Use in International Comparisons
- It can reveal disparities in development 1. Purchasing Power Parities
and highlight factors contributing to - PPPs are exchange rates that equalize the purchasing power of different
growth. currencies for a common basket of goods.
2. Long term trends
- They account for price differences between countries and facilitate
Limitations of Using GDP to Compare Living Stan
- Income Distribution: GDP per capita does not
income inequality, and a high GDP may conceal di
Distinction Between Economic living standards.
Rates of Change of Real GDP as a
Measures:
Measure of Economic Growth: 1. Real vs nominal - Non-Market Activities: GDP excludes non-mar
1. Economic growth - Real: Real values adjust for like household labor and informal economies, lead
- Economic growth refers to the increase inflation and reflect changes in the incomplete picture of living standards
in a country's real GDP over time quantity of goods and services
- It signifies an expansion of an produced - Quality of Life: GDP does not measure factors su
- Nominal: Nominal values do not healthcare, education, environmental quality, and
economy's production capacity and is a
adjust for inflation and represent well-being
key indicator of its overall economic
current market prices.
health
2. Total vs Per Capita
2. Measuring economic growth - Total: Total values represent the
- Economic growth is typically measured aggregate sum of a variable for a
by calculating the percentage change in given population or area. Gross National Income (GNI): The value of goods an
produced by a country over a period of time plus net over
real GDP over a specific period, such as - Per Capita: Per capita values
interest payments and dividends. This means that it adds
a year. represent the average amount per country earns from overseas investments and subtracts w
- The formula for growth rate is: Growth person and are calculated by foreigners earn in a country and send back home from the
Rate = [(GDP at Time 2 - GDP at Time dividing the total by the is affected by profits from businesses owned overseas and
population. remittances sent home by migrant workers. This is increa
1) / GDP at Time 1] × 100.
3. Value vs Volume used rather than GDP because of the growing size of remi
- Value: Value represents the and aid.
monetary worth of goods and Gross National Product (GNP): The value of goods a
services produced. services over a period of time through labour or property
by citizens of a country both domestically (GDP) and over
- Volume: Volume measures the
means it is the value of all the goods produced by citizens
physical quantity of goods and country, whether they live in the country or not, whilst GD
Comparison of Rates of Growth Between
services produced, disregarding value of all goods produced inside the country, whether th
Countries and Over Time
their monetary value. produced by citizens of the country or not.
1. Cross-Country Comparisons
- Comparing growth rates between countries
helps assess relative economic
performance.
Understanding of PPPs and Their Use in International Comparisons
- It can reveal disparities in development 1. Purchasing Power Parities
and highlight factors contributing to - PPPs are exchange rates that equalize the purchasing power of different
growth. currencies for a common basket of goods.
2. Long term trends
- They account for price differences between countries and facilitate
