Edexcel A Level Economics A:复习笔记2.1.1 Economic Growth

Gross Domestic Product (GDP)

• National income accounting measures the economic activity within a country and provides insights into how a country is performing
• One of the main methods to determine economic activity is to measure the rate of change of output in an economy
• The output of an economy is called gross domestic product (GDP)
• GDP is the value of all goods/services produced in an economy in a one-year period
• It can be measured using the following approaches
  • The expenditure approach: adds up the value of all the expenditure in the economy
    • This includes consumption, government spending, investment by firms and net exports (exports - imports)
  • The income approach: adds up the rewards for the factors of production used
    • Wages from labour, rent from land, interest from capital and profit from entrepreneurship
• Both approaches should provide the same figure as one party's expenditure is another party's income
• The value of GDP is different to the volume of GDP
  • The value is the monetary worth
  • The volume is the physical number

The Distinction Between Real, Nominal & Per Capita GDP

• In economics, the use of the word nominal refers to the fact that the metric has not been adjusted for inflation
• Nominal GDP is the actual value of all goods/services produced in an economy in a one-year period
  • There has been no adjustment to the amount based on the increase in general price levels (inflation)
• Real GDP is the value of all goods/services produced in an economy in a one-year period - and adjusted for inflation
  • For example, if nominal GDP is £100bn and inflation is 10% then real GDP is £90bn
• GDP per capita = GDP / the population
  • It shows the mean wealth of each citizen in a country
  • This makes it easier to compare standards of living between countries:
    • For example, Switzerland has a much higher GDP/capita than Burundi

• GDP may not be the best metric to measure a country's output or wealth
• GDP measures the value of production within a country's borders
  • It does not consider the income earned by its citizens while operating outside of the country
• Gross national income (GNI) measures the income earned by citizens operating outside of the country + the GDP
  • Many citizens employ their resources outside of a country's borders - and then send the income home
• Gross national product (GNP) takes it one step further
  • GDP + income from abroad - income sent by non-residents to their home countries
• GNP/capita provides a much more realistic view of a country's wealth than GDP/capita

• National income statistics are useful for making comparisons between countries
  • They provide insights on the effectiveness of government policies
  • They allow judgments to be made about the relative wealth and standard of living within each country
  • They allow comparisons to be made over the same or different time periods
    • For example, the growth of the Asian Economies in the last 15 years can be compared to the growth of the European Economies in the 1990s
• Using real GDP is a better comparison than nominal GDP
  • One country may have a much higher rate of economic growth, but also a much higher rate of inflation. Real GDP provides a better comparison
• Using real GDP/Capita provides better information than real GDP as it takes population differences into account
• Using real GNI/capita is a more realistic metric for analysing the income available per person than GDP/capita
• Using real GNP/capita provides information on the income that is actually within a country's borders
  • This value can be significantly different from GDP/Capita

• Purchasing power parity (PPP) is a conversion factor that can be applied to GDP, GNI and GNP
• It calculates the relative purchasing power of different currencies
  • It shows the number of units of a country's currency that are required to buy a product in the local economy, as $1 would buy of the same product in the USA
• The aim of PPP is to help make a more accurate standard of living comparison between countries where goods/services cost different amounts
• If a basket of goods cost $150 in Vietnam (once the currency has been converted) and the same basket of goods cost $450 in the USA, the purchasing power parity would be 1:3
  • It seems like the cost of living is much higher in the USA
  • However, if the USA GNP/capita is more than three times higher than the GNP/capita of Vietnam, it could be argued the USA has better standards of living
  • Conversely, if the GNP/capita in the USA was less than three times that of Vietnam, it could be argued that Vietnamese citizens enjoy a higher standard of living as they spend less income to acquire the same goods/services

 A Table Which Explains the Limitations of Using GDP Data to Compare Living Standards Between Countries & Over Time

• National happiness and societal well-being are measured in the UK by the Office for National Statistics (ONS)
• While GDP focusses on production, happiness focuses on health, relationships, the environment, education, satisfaction at work and living conditions
• National incomes statistics tend to present more positive data while national happiness surveys yield more normative data
• There is a link between income and happiness and the Easterlin Paradox is often used to explain it
  • Happiness and increases in income have a direct relationship up to a point
  • Beyond that point, the relationship is less evident