Some questions on economic growth today.
PLEASE ANSWER QUESTIONS BELOW:
Define GDP
What is economic growth? How is it measured? What are the different kinds of economic growth? Please provide examples.
Is GDP a good way of measuring living standards? Would you say GDP per capita is better or worse than GDP for measuring living standards?
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ANSWERS:
1) Define GDP
GDP can be defined as Gross Domestic Product. It is the market value of all goods and services produced within a country within a given period.
2) What is economic growth? How is it measured? What are the different kinds of economic growth? Please provide examples.
Economic growth is when national output in the economy increases. It is measured using GDP, and the best measure would be real GDP because this takes out the effects of inflation and is a measure of output.
The first kind of economic growth is short-run economic growth. This type of economic growth is usually demand-led (AD).
An example is when the economy grows due to increases in spending. Let’s say there’s an increase in consumer confidence in the economy then consumption will increase. Another example is an increase in employment rates, meaning national income rises and an increase in spending (AD).
The second kind of economic growth is long-run economic growth. This type of economic growth occurs when there is an expansion of the LRAS or PPF. It is an increase in the productive potential of the economy.
An example of this would be discoveries of a new stock of natural resources. Another example would be an improvement in the productivity of labour.
3) Is GDP a good way of measuring living standards? Would you say GDP per capita is better or worse than GDP for measuring living standards?
GDP is quite a good way of measuring living standards. It is a measure of national income, so that is the total income in the country received domestically. However, GDP per capita is a better way of measuring living standards because it can calculated by Total GDP / Population Size. If GDP per capita is higher than another country’s GDP per capita, then the average person has a higher income on average.
However, neither of the two measures take into account equality. It only looks at the average income. We know that some people are earning very high incomes whereas others are only scraping by. So both measures are only good to use if income equality in a country is fairly distributed.
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