MACRO
ECONOMICS
REVISION BOOKLET
UNIT 2
1
,C21: Introduction To The measures Of Economic Performance
-National Economic Performance
-Economic Growth
-Unemployment
-Inflation
-Balance of payments
C22: Economic Growth & GDP/GNI:
Economic Growth:
“Economic Growth is the long-term expansion of productive potential”
In the short term, growth is measured by annual %Δ in real national output. The standard
measure of national output used to compare the economic performance of countries is GDP.
Another National income measure is GNI (Gross National Income).
GDP GDP per capita
GDP is a measure of the total output of a (Per person) and is the total output
country. It is the value of all newly divided by the population
produced final goods and services
produced in an economy within a given
period. GDP is a key indicator of the
standard of living of an economy
(GDP is usually measured in common currency mainly the US dollar)
Real GDP Nominal GDP
Inflation-adjusted NOT inflation-adjusted
GNI: “Gross National Income (GNI) is the total amount of money earned by a country's
residents and businesses, including income earned abroad.”
GNI Formula:
“GDP + net property income from abroad (NPIA)”
2
, COMPARING ECONOMIC GROWTH:
Purchasing Power Parity (PPP) can be used to provide an accurate comparison of economic
growth
(PPP)
Definition Necessary?
“The exchange rate needed to buy the -Exchange rates are very volatile
same basket of goods in each country”
Allows comparison between different -Exchange rates are more relevant for
countries’ currencies through a “basket of some goods and not others
goods” approach.
Takes into account exchange rates -The price of int. goods may relate to
exchange rates but domestic goods such as
haircuts can fluctuate greatly across
nations
Limitations Of GDP Limitations Of PPP
-Does not take into account the quality of -Does not take into account the relative
goods only their value quality of goods across nations
-Does not take into account “Underground -The decision about what should go into
economy”: transactions or goods & services the basket of goods is disputed
in cash that are not registered: drug market
-Baskets need to be updated each year
-Quality of economic data varies
considerably from countries
3
ECONOMICS
REVISION BOOKLET
UNIT 2
1
,C21: Introduction To The measures Of Economic Performance
-National Economic Performance
-Economic Growth
-Unemployment
-Inflation
-Balance of payments
C22: Economic Growth & GDP/GNI:
Economic Growth:
“Economic Growth is the long-term expansion of productive potential”
In the short term, growth is measured by annual %Δ in real national output. The standard
measure of national output used to compare the economic performance of countries is GDP.
Another National income measure is GNI (Gross National Income).
GDP GDP per capita
GDP is a measure of the total output of a (Per person) and is the total output
country. It is the value of all newly divided by the population
produced final goods and services
produced in an economy within a given
period. GDP is a key indicator of the
standard of living of an economy
(GDP is usually measured in common currency mainly the US dollar)
Real GDP Nominal GDP
Inflation-adjusted NOT inflation-adjusted
GNI: “Gross National Income (GNI) is the total amount of money earned by a country's
residents and businesses, including income earned abroad.”
GNI Formula:
“GDP + net property income from abroad (NPIA)”
2
, COMPARING ECONOMIC GROWTH:
Purchasing Power Parity (PPP) can be used to provide an accurate comparison of economic
growth
(PPP)
Definition Necessary?
“The exchange rate needed to buy the -Exchange rates are very volatile
same basket of goods in each country”
Allows comparison between different -Exchange rates are more relevant for
countries’ currencies through a “basket of some goods and not others
goods” approach.
Takes into account exchange rates -The price of int. goods may relate to
exchange rates but domestic goods such as
haircuts can fluctuate greatly across
nations
Limitations Of GDP Limitations Of PPP
-Does not take into account the quality of -Does not take into account the relative
goods only their value quality of goods across nations
-Does not take into account “Underground -The decision about what should go into
economy”: transactions or goods & services the basket of goods is disputed
in cash that are not registered: drug market
-Baskets need to be updated each year
-Quality of economic data varies
considerably from countries
3
