ECONOMICS 101

By Katie O’Driscoll & Olivia Burke

INTRODUCTIONA

GDP Real GDP GNP Per Capita GDP Net Factor Income

B (i) The limitations of using GDP showing how well off economies are.

(ii) Irelands black economy and the economic effects.

C Statistic diagram

GDP Gross Domestic Product (GDP) is a measurement of

economic wealth, that is the value of total output of goods and services in the economy

Source; Economics by David Begg, Stanley Fischer, Rudiger Dornbusch

IRISH GDP (NOMINAL) 2005-12,€M

Source:(Dept)- Central Bank

Irish GDP reached its highest level ever in 2007, just under€190 bn. It has declined significantly since, because of global financial crisis(Lehman brothers), Irish banking and property problems and Irish recession

2005 2006 2007 2008 2009 2010 2011 2012140000

150000

160000

170000

180000

190000

200000

REAL GDP Real GDP adjusts or accounts for changes in price or inflation

level. Adjusting GDP for changes in price(using GDP deflator) gives a more accurate reflection of real trends in economic wealth.

Real GDP is sometimes called "constant" GDP because it is expressed in terms of constant prices

http://en.wikipedia.org E.g. in Wonderland in 2005, nominal GDP is €100 bn. However,

due to an increase in the level of prices from 2000 (the base year) to 2005, real GDP is actually €160 bn. The lower real GDP reflects the price changes or inflation while nominal GDP does not.

IRISH REAL GDP (2005-12) €M

Source: (Dept)- Central Bank If you look at nominal GDP and real GDP, they are

going in the same direction up and down. You notice that 2005-2007 is in a straight line then the recession hits, however figures are much higher at nominal compared to real because of inflation.

2005 2006 2007 2008 2009 2010 2011 2012150000

155000

160000

165000

170000

175000

180000

GNP GNP- GNP is the output produced by factors of

production owned by residents of a country. Countries that have enterprises owned by foreign

individuals or companies for example Japan own car plants in Britain. The profits made by such a car plant as Nissan in Britain are included in Britain’s GDP but part of the profits are sent back to Japan and those profits are included in the Japanese GNP. GNP is a better indicator of living standards and GDP is a better indicator of productive activity.

Dobson , Palfreman, S.D , S.P, 1999. Introduction to Economics. 1st ed. Oxford: Oxford University Press.

PER CAPITA GDP Is an estimate of how much an individual spends as a

consumer compared to the total population spending on products and services

www.businessdictionary.com GDP Per Capita Index (2005=100) Source: Eurostat

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201380

85

90

95

100

105

110

UK GDP per capita

IRE GDP per capita

Eurozone GDP per capita

Useful when comparing one country to another, as it shows the relative performance of countries

www.investopedia.com A rising trend in this measure is a sign of

growth in the economy & increases in productivity

NET FACTOR INCOME

Net foreign factor income (NFFI) captures the net flow of income payments between the domestic economy and the foreign sector. As such it separates Gross National Product and Gross Domestic Product.

The two components of net foreign factor income are (1) foreign payments to domestic citizens and (2) domestic payments to foreign citizens.

www.Amosweb.com Factor incomes sent home such as wages earned by Irish

people and rents earned by Aer Lingus on aircraft rented to foreign airlines amounts to + 60. It is positive because it is money coming into the country and adding to the GDP.

LIMITATIONS OF GDP AS WEALTH MEASUREMENTS :

POLLUTION

The increase in GDP may have been generated at a huge cost to the environment, which may require reconstruction( factories and buildings are now subject to stricter environmental regulations) which will impact negatively on the economy in the short term.

By products of production such as pollution and toxic waste are not deducted from GDP as a cost to society. Therefore GDP overstates the environmental well being of a nation.

POPULATION If GDP in country B has increased by 10 % over the

past 5 years but the growth in population in the country has grown by more than 10% then the average standard of living had actually fallen in terms of lower GDP per head.

In an African country in 2009, GDP increased by 50%. The population doubled(+100%) in the same year. A family of 2 in this country had GDP per person of €100, or total GDP = €200. So the family of 4 now has GDP per person of €75, or total GDP = €300

INFLATION In country A GDP has risen 10% over the past 5

years but inflation is up 15% over the same period. So the standard of living over the 5 years has actually fallen and not risen.

In the Irish economy inflation is not a current problem and will not cause GDP figures to be misinterpreted.

INEQUALITIES OF INCOME AND WEALTH

GDP figures on their own do not show the distribution of income and the uneven spread of financial wealth.

Incomes and earnings may be very unequally distributed among the population and rising national prosperity can still be accompanied by rising relative poverty.

Example – The poverty trap means that families with lower incomes feel they cannot take higher pays or better jobs as they feel they will loose there benefits such as free childcare , healthcare, entitled to other benefits. It’s a loose, loose situation.

Example - The total income of all men in the world is more than double that of all women in the world. In every region men earn more than women do. The greatest income inequality between men and women is in Southern Asia where men earn five times more than women on average. (Global Fianace)

 

THE BALANCE BETWEEN CONSUMPTION AND INVESTMENT

 

We need to analyse the balance between consumption and investment.

If an economy devotes too many resources to satisfying the short run needs & wants of consumers. Eventually there will be insufficient resources for investment needed for long term economic development.

Faster economic growth might improve living standards today but lead to an over-exploitation of scarce finite such as oil, Gas.

Limiting future growth prospects.

Example- Saudi Arabia has the highest consumption of oil in the world, as it will last for many more years the saudi’s are exploiting the oil for there own benefit creating huge wealth.

 LEISURE AND WORKING HOURS

Rising national output might have been achieved at the expense of leisure time if workers are working longer hours.

E.G. A report released in August 1999, entitled Six Days A Week, claimed that more than a million managers and 656,000 professionals in the UK worked at least 48 hours a week. The study showed that the number of people working more than 48 hours a week has risen from 2.7 million to four million over the past 15 years.

E.G. British workers have the longest working week in Europe, with full-time workers putting in an average of 44 hours - three and a half hours longer than the European average

IRELANDS BLACK ECONOMY & IT’S EFFECTS

The Black economy or underground economy is a marketplace where goods and services trade without paying tax. i.e. tax is not declared for work done.

Economic Effects: Irish Government suffers a loss of tax revenue which

impacts negatively on the finances of the government for running the country

Irish Companies both large and small that operate in the tax system are at a competitive cost disadvantage in terms of wages and benefits. This threatens jobs.

STATISTIC DIAGRAM

22012 I RELAND UK USA CANADA AFRI CAN COUNTRY

ASI AN COUNTRY

EASTERN EUROPEAN

Ethopia J apan bulgaria $ $ $ $ $ $ $ TOTAL GDP 210.3

Billon 2.435 trillion

15.68 Trillion

1.821 trillion

43.13 billion 5.96 trillion

51.03 billion

GDP PER CAPI TA 45,835.75 38,514.46 49,965.27 52,218.99 470.22 46,720.36 6,986.04 GDP GROWTH RATE (MOST RECENT)

0.9% 0.3% 2.2 % 1.7 % 8.5 % 1.9% 0.8 %

UNEMPLOYMENT 13.3% 7.7 % 7.3% 7.1 % 17.5 % 4.1 % 12.90 %

I NFLATI ON 0.2% 2.7 % 1.5 % 1.1 % 10.6 % 0.8% -0.70% UNHDI RANKI NG

(MOST RECENT)

7 26 3 11 173 10 57

CONCLUSION

REFERENCES Economics by David Begg, Stanley Fischer, Rudiger Dornbusch. 5th ed. Year

1997. Department of Finance, Central Bank Dobson , Palfreman, S.D , S.P, 1999. Introduction to Economics. 1st ed.

Oxford: Oxford University Press. Modern Economics Leaving Certificate by Keith Spencer & Daniel

McCarthy. 3rd ed. Revised 2004. En.wikepia.org Eurostat (stats office) Institute Notes scoilnet.ie. 2013. Net factor income. [ONLINE] Available at:

http://test.scoilnet.ie/Res/charlieotoole020899150539_2.htm. www.Amosweb.com www.businessdictionary.com www.esri.ie www.investopedia.com Welkerswikinomics.wikifoundry.com http://www.tutor2u.net/economics/content/topics/livingstandards/

limitations_of_gdp.htm.

IMAGE REFERENCES Moodleshare.org thecollegevoice.org Studyingeconomics.ac.uk