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Economic Growth and GDP Explained

This document discusses measures of macroeconomic performance, specifically economic growth. It defines GDP as the total monetary value of goods and services produced within a country's borders in a given time period. Real GDP adjusts for inflation to show actual economic growth, while nominal GDP does not. GDP per capita divides total GDP by population to measure average output per person. National income can also be measured by GNP, which includes overseas production by citizens, and GNI. While GDP provides a way to compare living standards between countries, it has limitations as it does not show income distribution or account for differences in cost of living.

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Hussain Ahmad
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129 views3 pages

Economic Growth and GDP Explained

This document discusses measures of macroeconomic performance, specifically economic growth. It defines GDP as the total monetary value of goods and services produced within a country's borders in a given time period. Real GDP adjusts for inflation to show actual economic growth, while nominal GDP does not. GDP per capita divides total GDP by population to measure average output per person. National income can also be measured by GNP, which includes overseas production by citizens, and GNI. While GDP provides a way to compare living standards between countries, it has limitations as it does not show income distribution or account for differences in cost of living.

Uploaded by

Hussain Ahmad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

Edexcel​ ​Economics​ ​AS-level

Unit​ ​2:​ ​Macroeconomic​ ​Performance


and​ ​Policy

Topic​ ​1:​ Measures of


Macroeconomic Performance
1.1​ ​Economic growth

Notes

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Economic growth occurs when there is a rise in the value of Gross Domestic Product
(GDP).
GDP measures the quantity of goods and services produced in an economy. In other
words, a rise in economic growth means there has been an increase in national
output.
Economic growth leads to higher living standards and more employment
opportunities.
Real GDP is the value of GDP adjusted for inflation. For example, if the economy
grew by 4% since last year, but inflation was 2%, real economic growth was 2%.
Nominal GDP is the value of GDP without being adjusted for inflation. In the above
example, nominal economic growth is 4%. This is misleading, because it can make
GDP appear higher than it really is.
Total GDP is the combined monetary value of all goods and services produced
within a country’s borders during a specific time period.
GDP per capita is the value of total GDP divided by the population of the country.
Capita is another word for ‘head’, so it essentially measures the average output per
person in an economy. This is useful for comparing the relative performance of
countries.

National income can also be measured by:

o Gross National Product (GNP) is the market value of all products produced in
an annum by the labour and property supplied by the citizens of one country.
It includes GDP plus income earned from overseas assets minus income
earned by overseas residents. GDP is within a country’s borders, whilst GNP
includes products produced by citizens of a country, whether inside the
border or not.
o Gross National Income (GNI) is the 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 (this is the
compensation of employees and property income).

The use and limitations of national income data to compare differences in living
standards between countries

GDP does not give any indication of the distribution of income. Therefore, two
countries with similar GDPs per capita may have different distributions which lead
to different living standards in the country.

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GDP may need to be recalculated in terms of purchasing power, so that it can
account for international price differences. The purchasing power is determined by
the cost of living in each country, and the inflation rate.
There are also large hidden economies, such as the black market, which are not
accounted for in GDP. This can make GDP comparisons misleading and difficult to
compare.
GDP gives no indication of welfare. Other measures, such as the happiness index,
might be used to compare living standards instead or in conjunction with GDP.

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