1. Outline the limitations of real GDP as a measure of economic growth?
2. What is GPI? Why is this indicator a better measure of living standards than real GDP?
3. What is meant y the term of 'jobless growth'?
4. What are bottlenecks and how can they influence Australia's future rate of economic growth?
Real GDP has many limitations some of the biggest ones are:
- The fact that GDP can't measure or has imputed values for goods and services that weren't brought to the market. for example fruit produced at farms which are consumed by the farmers and vegetables grown in people's backyards and consumed at home. The ABS can try to estimate the value for some of these items but they can never be 100% accurate. As a result it is difficult to measure a lot of goods and services that fall into this category
- The method used to work out the rate of inflation and therefore used to adjust nominal GDP to real GDP has it's own inaccuracies so as a result we can never be sure that we have accounted for the full effects of inflation so it is still possible that some of the price change effects that make it difficult to measure EG using nominal GDP can still exist
- The methods used to gain the information used to calculate GDP are notiorisly inaccurate, for example individuals are unlikely to report the full extent of income they have earned during the year in their tax returns as a result the income component of GDP can not be fully measured.
and many many more. Infact at the bottom of this post I'll put in a spoiler all the limitations listed in my notes.
2. Geniune progress indiciator, is a measure that attempts to address some of the shortfalls of GDP. It starts by measuring the expenditure which has taken place in the economy, like GDP, however it continues on with several other adjustments in order to account for the social costs and any negative effects that growth may be causing, thereby the figure takes into account not only factors effecting material living standards, like GDP, but also those effecting non-material living standards, providing a more complete measurement of growth in the living standards of individuals in the economy.
3. I've never heard the term before...?? maybe something to do with productivity increases causing an increase in goods and services produced without the need for more employees thereby causing economic growth without an increase in employment levels??
4. I assume bottlenecks is capacity constraints.
There is only a limited amount of resources availible for use in the economy and as a result if growth is to high resources can begin to run out, as a result it is difficult for firms to expand production as resources may be hard to find due to their lack of availability and/or they may simply be not availible. Therefore the lack of resources could be a limit on economic growth and an overuse of resources could also place pressure on inflation as demand may be high with limited supply, further reducing levels of economic growth as this may cause speculative investment instead of productive investment as investors want to invest in areas where there invest is likely to go up in price with inflation as to not lose any money. (I'm not 100% sure on this one though, so better one of the smarter people read it first to make sure :P)
Spoiler
• doesn’t include non-marketed G+S where it is to difficult to get accurate values.
• Fails to distinguish between monetary transactions that improve our welfare (e.g. food) and those that detract from our welfare (e.g. tobacco)
• Doesn’t measure changes in quality of G+S.
• Some non-marketed G+S have a value imputed for them (e.g. government services without charge (Medicare etc.). Imputed values may not actually reflect true market values.
• Inaccuracies when converting to real GDP using chain volume measure. As index measuring inflation unlikely to be 100% accurate.
• Doesn’t take into account effects of changes in the terms of trade. (HELP!!)
• Figures largely based on estimates which are never 100& accurate.
• Does not take into account value associated with depletion of nations natural capital, depletion of natural resources and negative externalities.
• Does not take into account value of leisure time that may be sacrificed or gained when there are changes in GDP. (working longer hours etc. etc.).