1.5 - Economic Growth Flashcards
State the 7 government economic objectives
Economic growth
Full unemployment
Low and stable rate of inflation
Greater income equality
Protect the environment
Balance of payment equilibrium on that account
Balancing government budget
Define GDP
The measure of economic activities carried out in the domestic economy over a period of time
Formula for real GDP
Real gdp = Nominal GDP x 100 / Price index
Define ‘long run’ growth
Potential economic growth
Define ‘short run’ growth
Actual economic growth
What leads to short run growth
Increase usage of existing factors of production
What leads to long run growth?
Increase the number of factors of production
Or
Improve quality of the factors of production
Limitations of comparing GDP
Does not account population difference
Inequality to income distribution
Social indicators
Does not account informal sector
GNI over GDP advantages
Easier to understand, relatively straightforward
Reflects more closely the income of the residents
Well established for every country in the world
Benefits of economic growth
Higher living standards for consumers
Higher revenue and profit gain for producers
Greater balance budget for the government
Increased consumer and business confidence
Poverty levels reduced
Money spent on protecting the environment
Costs of economic growth
Environmental impact
Microinstablity due to demand pull inflation
Income inequality
Current account deceit
Factors contributing to the effects of economic growth
Sustainability
Government policies to reduce negative externality
Government ensuring all income group benefiting
State the business cycle
Boom, slowdown, recession, recovery
Define ‘recession’
When GDP fails for 2 or more consecutive quarters.
Define ‘GDP per capita’
Average level of GDP per head of population
