AS Economics Unit 2: Managing the Economy - GDP

What is GDP?
Gross Domestic Product: represents the value of goods and services produced in the country from all sections of the economy. GDP per capita is per person.
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How is GDP measured?
Total Income, Total Output, Total Expenditure. Measured quarterly (2 consecutive contraction quarters=recession)
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What is GDP used for?
Used as a measure for S.O.L Used by the Monetary Policy Committee (MPC) and the Bank of England to set interest rates monthly, Used by the treasury to plan economic policy (tax etc) Used to compare economies+ to determine contributions to EU Budget
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What is real GDP?
GDP after accounting for inflation.
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What makes changes in GDP significant?
Indicates whether the economy has grown in size and at what rate it is growing.
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What does Short Run and Long Run economic growth show?
Short Run – Will see fluctuations in GDP (boom and recession) due to changes in level of economic activity. Long Run – Will see an increase in productive capacity of economy.
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What is economic growth?
An increase in the productive capacity in the economy.
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What can cause economic growth?
Increased productivity, investment in technology, investment in machinery, better qualifications.
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How does Increased Productivity create economic growth?
A more productive and efficient workforce will create higher revenue for a business. ISSUES: May cause need for higher wages, must have the demand for product being made or will result in spare capacity.
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How does Investment in Technology create economic growth?
Tasks can be done more efficiently = higher revenue can be generated. This will also result in higher expenditure which may monopolise in economy. ISSUES: may create an inward shift in demand for labour, may require more specific human capital
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How does investment in machinery create economic growth?
More capital = less need for labour force. Increases output for business. ISSUES: same as technology.
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How do better qualifications create economic growth?
People have higher human capital so can do more skilled jobs. ISSUES: Opportunity cost of longer education is loss of income that could be generated in that time. There is also a time lag in higher earnings.
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What are the criticisms of GDP?
The method of calculation, does not account for: Inflation, Negative externalities, the black market, wealth inequality.
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What method, other than GDP, is used to measure the standard of living?
HDI - Human Development Index: it is an independent report from the UNDP providing alternative to GDP
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How is the HDI calculated?
Considers life expectancy at birth, S.O.L (measured by GDP), Adult literacy rates and ratios of primary, secondary and tertiary employment.
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Which is more representative: HDI or GDP?
The HDI considers real development indicators of both SOL and how developed an economy is (indicating that developed looks after it's people!)
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What are the criticisms of the HDI?
Does not represent U18s or Unemployed, does not consider internal development gap.
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What factors does economic growth have a multiplier effect on?
S.O.L, Retail sales, Corporate profits, Investment, Employment.
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How does economic growth impact SOL?
If GDP were to increase, there would be an assumed increase in SOL due to increased output and increased spending capacity (per capita).
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How does economic growth impact Retail Sales?
If GDP were to increase, it is assumed that retail sales would increase due to higher disposable income=higher consumption of goods
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How does economic growth impact Corporate Profits?
If GDP were to increase, it is assumed there will be an increase in sales thus an increase in output and thus corporate profits overall. Will lead to an inc. in dividend payouts to shareholders.
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How does economic growth impact Investment?
If GDP were to increase, there may be an increase in capital which will require more workers to operate. Drives growth as more investment=higher requirement for labour.
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How does economic growth impact Employment?
If GDP were to increase, there may be an increased derrived demand for labour which may trigger a rise in employment as higher output is required. Means gvmnt has to spend less and earns more from taxation.
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Card 2

Front

How is GDP measured?

Back

Total Income, Total Output, Total Expenditure. Measured quarterly (2 consecutive contraction quarters=recession)

Card 3

Front

What is GDP used for?

Back

Preview of the front of card 3

Card 4

Front

What is real GDP?

Back

Preview of the front of card 4

Card 5

Front

What makes changes in GDP significant?

Back

Preview of the front of card 5
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