are included in the abroad country’s GDP, not GNP
Eg: wages paid to Brazilian workers are part of Brazil’s GNP even though
profits are not.
GPI: Genuine Progress Indicator: treats activities that harm our enviro
nment/quality of life
as costs, Eg: even if an oil spill creates jobs to clean up, it is assigned a negati
Real GDP: Real growth rate of GDP (the preferred method of calculating nat
income/output) is adjusted for inflation and change in country’s currency valu
e. This is
Growth depends on output increasing at faster rate than population.
Therefore, standard of living improves.
• GDP per Capita: divide GDP by the population.
Real GDP (definition above): GDP has been adjusted. NO ADJUSTMEN
measured in current dollars OR with all components valued at current prices.
Purchasing power parity: exchange rates set so that prices of similar prod
ucts in different
countries are about the same. It gives a better sense of standards of living wo
• Productivity: Measure of economic growth
o compares how much a system produces to the factors of production used
Value of Output/Value of Input.
Prices in productive industries go down, because less factors of production are
Therefore, standard of living increases.
o Standard of living improves only through increases in productivity
o Real growth in GDP reflects productivity growth.
• Balance of Trade Country’s exports – it’s imports
o Positive balance helps economic growth
o Negative balance of trade inhibits economic growth. A.K.A. trade deficit:
Creditor nation has positive
Debtor nation – money that flows out of a country can’t be used to invest in
productive enterprises either at home or overseas