GDP

Question 1

What is GDP?

Answer 1

• the total value of final goods and services produced in an economy over a year.
• measures the rate of change of output

Question 2

Problems with GDP

Answer 2

D - double counting
I - informal activity
E - errors given vast data collection
N - negative externalities
O - output produced
O - other quality of life aspects
I - income inequality

Question 3

What is GDP per capita?

Answer 3

• the GDP per person

Question 4

D - double counting

Answer 4

• include value of output in the primary sector and include it again when it has been produced in the secondary sector
• inflates the final value of GDP

Question 5

I - informal activity

Answer 5

• black market/illegal activity

Question 6

E - errors given vast data collection

Answer 6

• very large amount of data - mistakes can be made due to the variety of sources - short space of time

Question 7

Negative externalities

Answer 7

• quality of life/output is ignored completely
  Eg . Deforestation, depletion of resources

Question 8

Income inequality

Answer 8

• distribution of income is ignored

Question 9

Output produced

Answer 9

• capital goods being produced doesn’t benefit consumers - so doesn’t increase living standard

Question 10

Other quality of life aspects

Answer 10

• healthcare
• education
• freedom
• gender equality
  All increase living standards - not considered in GDP

Question 11

Problems with GDP per capita

Answer 11

• same as GDP
  Also:
• income from abroad and significance of remittances
• remittances - workers from one country go to work in another country to get higher wages and send the money back to their home country
• influence of FDI (foreign direct investment) - counts towards GDP - but profit earned by these foreign firms will be sent back to where the FDI came from so it won’t raise living standards in the country where the goods are produced by the foreign firm

Question 12

GNI

Answer 12

• income earned by domestic workers/firms- income earned by foreign firms or workers

Question 13

Methods to measure GDP

Answer 13

• output method
• income method
• expenditure method

Question 14

Ways to measure GDP

Answer 14

• output method
• income method
• expenditure method

Question 15

Output method

Answer 15

• the final value of all goods and services produced in an economy in a year

Question 16

Income method

Answer 16

• adding up all income, profit, interest and rent in an economy (all factor incomes)

Question 17

Expenditure method

Answer 17

• same formula as aggregate demand