Economic Growth and GDP Concepts

Economic Growth

• Economic growth is an increase in the value of Gross Domestic Product (GDP).
• GDP measures the quantity of goods and services produced in an economy.
• Increased economic growth leads to higher living standards and more employment opportunities.
• Real GDP is the value of GDP adjusted for inflation.
• Nominal GDP is the value of GDP without adjustments for inflation.

GDP, GNP and GNI

• Total GDP is the combined value of all goods and services produced within a country's borders during a specific time period.
• GDP per capita is the total GDP divided by the population, representing average output per person.
• Gross National Product (GNP) is the market value of all products produced annually by a country's citizens, including income from overseas assets.
• Gross National Income (GNI) is the sum of value added by all producers within a nation plus net overseas payments.

Purchasing Power Parity (PPP)

• PPP estimates how exchange rates need adjusting to ensure that an exchange between countries is equivalent based on each currency's purchasing power.

Limitations of Using GDP

• GDP doesn't show income distribution; countries with similar GDP per capita can have different living standards.
• GDP may need recalculation to account for international price differences.
• GDP doesn't consider hidden economies (e.g., black market).

National Happiness

• The Office for National Statistics (ONS) is developing ways to measure national well-being in the UK.
• Factors affecting well-being include real GDP per capita, health, life expectancy, social connections, freedom of choice, and absence of corruption.

Inflation

• Inflation is a sustained rise in the general price level over time, decreasing purchasing power.
• Deflation is the opposite, a fall in the average price level; this is a negative inflation rate.
• Disinflation is a fall in the rate of inflation.

Calculating Inflation

• The Consumer Price Index (CPI) measures household purchasing power.
• A basket of goods is created, weighted based on consumer spending habits.
• The CPI basket is updated annually to reflect spending patterns.
• In the UK, the target inflation rate is approximately 2%.

Types of Inflation, Causes and Effects

• Demand-pull inflation occurs when aggregate demand exceeds the economy's ability to supply goods and services.
• Cost-push inflation is caused by rising production costs, like raw material or labor prices increasing.
• Rising expectations of inflation can lead to wage demands resulting in more inflation.
• Indirect taxes can be increased to pass these costs on to the consumer.
• Factors causing increased inflation include depreciation of the exchange rate, increased consumer spending, rising UK growth in exports, and fiscal stimuli.

Unemployment

• Unemployment is difficult to measure accurately; some employed may claim unemployment benefits, while some unemployed may not.
• The Claimant Count is one measure that tracks the number of people claiming unemployment benefits in the UK.
• The International Labour Organisation (ILO) and the UK Labour Force Survey (LFS) directly asks people about employment status.
• Criteria for being classified as unemployed include been out of work for four weeks and being able and willing to work within two weeks.

Types of Unemployment

• Structural unemployment occurs due to a long-term decline in demand for particular industries.
• Frictional unemployment is the time between leaving a job and finding another one.
• Seasonal unemployment is tied to certain parts of the year when demand fluctuates (e.g. tourism or agriculture).
• Demand-deficiency unemployment (cyclical unemployment) results from a lack of demand for goods and services during recessions.
• Real wage inflexibility results from wages that don't adjust to market equilibrium leading to excess supply of labor.

Significance of Migration and Skills

• Increased migration leads to a higher labour supply and potentially affects wages.
• Immigrants tend to bring high-quality skills, which can boost productivity and enhance the workforce's skillset.
• Economically inactive includes those retired or caring for others that are not actively looking for work.

Balance of Payments

• The balance of payments records all financial transactions between consumers, firms, and the government.
• It includes exports (positive, inflow), and imports (negative, outflow).
• Key components include current account, capital account, and official financing account.
• A current account deficit means a country spends more on imports than it earns from exports.

Interconnectedness of Economies Through International Trade

• International trade creates interdependence between economies.
• Economic conditions in one country can influence others through the effect of trade on demand and supply.

Explore economic growth, GDP, GNP, GNI, and purchasing power parity in this quiz. Understand how these concepts affect living standards and employment opportunities. Test your knowledge on key definitions and measures in economics.