Question

Complete the following questions:

1. What is included and excluded in GDP?

2. What are the differences between nominal and real GDP?

3. What is included in the Human Development Index? What advantages does it have over RGDP/capita as a measurement of economic performance?

4. Why doesn't economic growth always indicate improvements in the quality of life for a nation?

5. What are the components of economic growth? Which factors contribute to the growth of these components?

6. How do you calculate economic growth?

Answer 1

Answer : Items that has been included in GDP are :

• Production of goods and services in the current year.
• Only goods that are produced legally are included in the production process.

Items that has been excluded from GDP are :

• Sale of used goods and services from inventories of goods.
• Transfer payment are not included in GDP.

Answer 2 : Difference between Nominal GDP VS Real GDP are :

• Meaning - Nominal GDP is calculate on the basis of current year price index where as real GDP calculated on the basis of base year price index.
• Basis - Nominal GDP fluctuates due to fluctuation in the flow of goods and services in an economy where as quantity has been fluctuation  as price remains same.
• Economic growth - Nominal GDP is not real indicator of economic growth where as real GDP is real indicator of economic growth.

Answer 3 :  Items that has been included in the Human Development Index are :

1. Life expectancy of an individual in a country.
2. Education level attained in a country.
3. Per capita income indicators of a country.

Advantages of Human Development index are :

• It is composite of three indicators such as better than just looking for money. As money is not single factor which affects the development of a country.
• It allows a systematic comparison between regions and countries.
• It allows for analysis of different components.Answer

Answer 4 : Economic growth is not better indicator of the quality of life of the nation because there is no single factor which lead to an improvement in the quality of life of an individual, people faced utmost important factor as quality life but economic growth only taken into an account monetary terms and calculated on the basis of real GDP.

Answer 5 : Components of an economic growth are :

1. Capital Accumulation
2. Investment made in physical and human capital
3. Growth in population and economic growth of the country.
4. Technology progress in the country

The factors such as households, businessman and non profit institutions lead to the growth of the economic components that has been taken place in it.

Answer 6 : The economic growth rate is rate of change in real GDP from one year to another.

Economic Growth Rate = (Real GDP (Current ) - Real GDP ( Previous )/ Real GDP ( Previous))*100