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Measuring economic development - Coggle Diagram
Measuring economic development
Measuring the level of economic activity
National income as a measure of macroeconomic activity
National income
National income is the money value of a country's output of final goods and services produced in one year.
Economic activity
Economic activity is where scarce resources are allocated to produce goods and services to satisfy human wants.
Macroeconomics
Macroeconomics is the study of economic activity from a whole economy perspective.
Circular flow of income
The circular flow of income is an economic model that illustrates the flow of money between firms and households at a macroeconomic level.
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It sets out
The firms pay the factors of production (that come from households) income.
Hosueholds buy goods and servces as consumer expenditure
Firms combine the factors of production to produce goods and services.
Injections
governmetn ependiture
exports
investemtn
The economy is divided in firms and households
Withdrawal
taxes
imports
savings
Uses
The circular flow model can be used to analyse the causes and consequences of changes in economic variables.
GDP
Gross domestic product definition
GDP is the money value of all final goods and services a country produces in one year.
Used to measure national income
normally seen in annual figures
The GDP is expressed in money terms using a country’s currency, although the value in $US is used for international comparison.
Final goods and services
GDP is calculated through the value of th efinal goods produced
Intermadiate goods like raw materials are ont included in GDP
If they were included it could lead to double counting
3 ways of measuring GDP
Output method
Value-added of firms in different sectors of the economy
value of the products produced by firms
sectors include
secondary
tertiary
primary
Expenditure method
Value of total expenditure of different sectors of the economy.
4 types of expenditure
Investment
spending by firms on capital equipment
government
Spending on public services
consumption
spednig by households on final goods and services
Net exports
the surplus of the value of exports over the value of imports
Income method
Value of income earned by households in one year
In form of
Interest paid for capital
Rent paid for land
wages paid for labour
Profits and dividends paid for entrepeneurs
To calculate
wages + rent + interest + profit + ( indirect taxes - subsidiaries)
GNI gross national income
Gross national income is a country's total income, calculated by adding net property income from abroad to the GDP.
GDP + net incomes abroad = GNI
Net property from abroad
income from domestic assets owned overseas that flows into domestic income, less income from foreign assets that flows out of the domestic economy.
Property income
money earned by households on different assets.
Comes from
Profit from businesses owned
rent on proprty owned
Interests on loans made
remittances on overseas employment
GNI per capita
Measures GNI per head of population
Calcuulated through
GNI/population
Adjusting for inflation
Real GDP is GDP adjusted for inflation
Nominal gdp - inflation= real GDP
Calculating real GDP
nominal GDP/ GDP deflator x100
Economic growth
Economic growth is the increase in a country’s real GDP over time.
The economic growth rate of a country is the percentage increase in its real GDP over one year.
Calculated through
GDP current year - GDP previous year/GDP previous yea x 100
Business cycle
The business cycle is the way the economic rate of growth of a country rises and falls over time.
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Parts of the business cycle
Slowdown faze
The rate of economic growth falls, the rise in household incomes fall, unemployment might start to rise and less pressure for inflation to increase.
Recesion phase
Increase negative output gap and spare productive capacity
low inflation
Increasing unemployment
Increasing government expenditure leading to a grater budget deficit
negative economic growth
Boom phase
riskier decisions taken
Increased rate of inflation
Decreasing unemployment and increasing job vacancies
Improvement in he goverment budget
high rate of economic growthh
Recovery phase
Real GDP starts to increase, household incomes rise, unemployment falls and a rise in inflation.
Measuring economic development
Economic development can be defined as the improvement of the well-being of a country’s citizens over time.
Characteristics of economic develpment
Falling levels of poverty
Increased provision of publc services
rising househol incomes
Real GNI per capita
This is based on the assumption that the higher the real GNI per capita a country has, the more developed it is
Based on
lower levels of poverty
Better healthcare and education provision
Higher avarage incomes
PPP purchase power parity
Allows economist to compare the purchasing power of different currencie
Done through comparing the cost of a set of goods and services in different countries to determine how much each currency is needed to buy the same quantity of goods
exp
Price of basket of goods in the US/ price of basket of goods in the EU= PPP exchange rate
problemns
Nature of goods produced
goods produced and consumed in a country add more to welfare than others. Money spent on education may well create more welfare than the same amount spent on luxury yachts.
Changes in quality over time
Economic growth understates economic development because the quality of products produced by an economy improves over time
income distribution
The GNI per capita is an average, and that does not account for the disparity between the richest and poorest people in society.
Non monetray factors
These can't be measured through GNI
Includes
poitical freedom
leisure time
Crime rates
climate
Alternative methods
World happiness report
Ranks national happiness using a survey
Scale from 1 to 10
OCED better life index
11 objectives measured to determine the welfare of a country
Includes
Housing
Income
Employment
Community life
Education
Environmental factors
Governance
Health
Level of happiness
Safety and security
Work-life balance
Human development index (HDI)
Created by united nations
Uses the human development index to measure country's economic devleopment
Criteria used
real GDP
Mean years of schooling
life expectancy
from 0 to 1
Happy planet index
Measures the sustainable wellbeing of a nation's population
4 elements
inequality of outcomes
ecological footprint
life expectancy
wellbwing