Economics Unit 2 Notes
Unit 2 Summary notes – Nikhil Pillai
Measurements of economic performance Economic growth
Two meaning of the term economic growth: - Actual growth, increase in real incomes or GDP - Potential growth, increase in the productive capacity in a country Real values are adjusted to remove the effects of inflation.
Nominal values are current incomes that are not adjusted For GDP to have any significance in terms of standards of living; figures must be given per head (or per capita).
E.g. If incomes increase by 10% but population increases by 20% people are worse off per head. Important distinction, look at value not volume when measuring economic growth.
E.g. Germany biggest exporter in the world in terms of value whereas china exports a lot more in terms of volume. How is GDP measured?
GDP is the sum of all goods and services produced in a country in a year. It is also the sum of all incomes earner in a year and the sum of all expenditure in one country in a year.
Increase in GDP is a sign that a country is experiencing increasing incomes, outputs and spending. (Not always right,
e.g. if you earn more you may work long hours, be under pressure, depression etc.)
Problems of comparison:
- Subsistence, barter and the black economy. Farmers consume their own output, goods traded without price system; goods paid for and not declared (to dodge tax) Currency values. Knowing whether to use official value of currency or purchasing power of a currency Income distribution.
-Size of public sector. If much of the spending in the economy is by government it might or might not improve welfare for the population. Consumer and capital spending. Spending on investment goods may lead to increased standard of living in future at the price of standard of living today and GDP does not take future into account. Better if figures are broken down to look at the investment elements.
-Quality issues. E.g. spending on schools may be high but how do we
Measurements of economic performance Economic growth
Two meaning of the term economic growth: - Actual growth, increase in real incomes or GDP - Potential growth, increase in the productive capacity in a country Real values are adjusted to remove the effects of inflation.
Nominal values are current incomes that are not adjusted For GDP to have any significance in terms of standards of living; figures must be given per head (or per capita).
E.g. If incomes increase by 10% but population increases by 20% people are worse off per head. Important distinction, look at value not volume when measuring economic growth.
E.g. Germany biggest exporter in the world in terms of value whereas china exports a lot more in terms of volume. How is GDP measured?
GDP is the sum of all goods and services produced in a country in a year. It is also the sum of all incomes earner in a year and the sum of all expenditure in one country in a year.
Increase in GDP is a sign that a country is experiencing increasing incomes, outputs and spending. (Not always right,
e.g. if you earn more you may work long hours, be under pressure, depression etc.)
Problems of comparison:
- Subsistence, barter and the black economy. Farmers consume their own output, goods traded without price system; goods paid for and not declared (to dodge tax) Currency values. Knowing whether to use official value of currency or purchasing power of a currency Income distribution.
-Size of public sector. If much of the spending in the economy is by government it might or might not improve welfare for the population. Consumer and capital spending. Spending on investment goods may lead to increased standard of living in future at the price of standard of living today and GDP does not take future into account. Better if figures are broken down to look at the investment elements.
-Quality issues. E.g. spending on schools may be high but how do we