Practise interpreting GDP and GNI data, calculating index numbers and growth measures, and judging limits of living standards comparisons.
The data shows the quarterly percentage growth of real GDP for Belgium between Q1 2019 and Q4 2019.
With reference to the overall trend of the data, explain what is meant by the term 'growth of real GDP'.
Sources for use with Section C
The economy of Ireland
Figure 1 Annual real GDP growth rate (%), 2013 to 2022
Figure 2 Annual real GDP growth rate (%) for selected countries, 2022
Extract A Limitations of using GDP Many economists argue that Ireland’s high rate of economic growth for 2022 is not accurate. They claim that Ireland only experiences high rates of economic growth because international companies take advantage of the country’s low corporation tax rate of 12.5%. This tax rate is lower than the corporation tax rates of many other 5 European countries and has attracted over 1 500 international companies. Some of these companies are so large that the country’s GDP figures may be overstated. For example, Apple Inc., the world’s largest technology company, moved its European base to Ireland in 2015. This resulted in a significant increase in the country’s rate of economic growth. In 2018 the global sales of Apple iPhones accounted for 25% of the 10 GDP growth rate in Ireland. In 2022 there were large fluctuations in Ireland’s industrial production data. It rose or fell by more than 10% from one month to the next. This led to Ireland’s central bank reviewing how it calculated seasonal adjustments when measuring the country’s GDP. Economists suggested that Ireland’s GDP data was meaningless as a guide to how the 15 economy is performing. For example, they argued that using GDP can mislead analysis of matters related to income inequality and the environment. However, Ireland’s central bank defended this measurement of the country’s rate of economic growth for 2022. It indicated that the activities of international companies had a positive impact on living standards in Ireland. Between 2015 and 2022 employment 20 increased from 2.06 million to 2.55 million. This contributed to a significant increase in government revenues from income tax and corporation tax. In 2022 the country’s corporation tax receipts rose to an all-time high of €22.6 billion. Ireland’s central bank also uses Gross National Income (GNI) as an alternative measure of economic growth. This measure removes the impact of international companies and 25 provides a better understanding of domestic demand. According to the GNI measure, Ireland’s rate of economic growth was much lower at 5.9% in 2022. In 2023 Ireland’s rate of economic growth was expected to decrease to just 4%, as measured by GDP. This is as a result of a high rate of inflation, rising interest rates and the weakening state of the global economy. Forecasts also suggest that between 2024 30 and 2027, GDP is likely to grow by an average of 3.5% per year.
Explain what is meant by Gross National Income (Extract A, line 24).
With reference to Figure 2, Extract A and your own knowledge, discuss the limitations of using GDP to compare living standards between countries.
Sources for use with Section C
The economy of China
Figure 1 Year on year real GDP growth rate by quarter, Q1 2020 to Q2 2022
Figure 2 Youth unemployment rate (16 to 24 year olds), as measured by the International Labour Organization (ILO), January 2022 to June 2022
Extract A Economic growth In the second quarter of 2022 China experienced a low rate of economic growth. This was as a result of domestic demand for goods and services, and exports rising more slowly compared with the previous quarter. Economists estimated that China’s economy would continue to experience a low rate of economic growth until the end 5 of the year. Therefore, the country’s economic growth forecast for 2022 was reduced from 5.5% to 4.3%. This low economic growth rate resulted in a further increase in the already high rate of youth unemployment. China has too many college and university graduates for the economy to employ. In 2022 there was also a mismatch between the jobs that are 10 available and students’ qualifications. For example, at the start of the third quarter of 2022, only 0.70 jobs were available for each graduate. To increase the rate of economic growth the Government implemented a reflationary fiscal policy. It increased spending on infrastructure by over $75 billion and reduced taxes for businesses. It planned to increase science and technology‑related 15 investments by providing 100% tax breaks on research and development spending. The country’s central bank, the People’s Bank of China (PBoC), implemented a reflationary monetary policy to increase the country’s economic growth rate. For example, the PBoC decreased the base rate of interest from 3.7% to 3.65% in August 2022. There was also a reduction in the reserve asset (liquidity) requirements 20 in November 2022. This was in contrast to the policy of central banks in several advanced economies which implemented deflationary monetary policy. One economist stated that “the room for manoeuvre” for a reflationary monetary policy by the PBoC was limited because of rising US interest rates. He also emphasised the risks associated with a fall in the external value of the Chinese 25 currency, the Renminbi.
Define the term 'real GDP' (Figure 1).
With reference to Figure 2, explain how ILO unemployment is measured.
With reference to Extract A, analyse two causes of China's high youth unemployment rate.