2.1 economic growth Flashcards
how do we measure level of performance in the macroeconomy
economic growth, low unemployment, low inflation, fair distribution of wealth, competitive BoP position
SR economic growth def.
an increase in the total value of all goods and services produced in an economy in a given time period ((short run economic growth - measured by GDP)
LR economic growth def.
an increase in productive potential or capacity of an economy (shown by a right shift of lras or ppc)
causes of sr economic growth
change in cost of raw materials, increase in ad
causes of sr economic growth: change in cost of raw materials
sras curve shifts right
causes of sr economic growth: increase in ad
ad curve shifts right, output increases and price increases
causes of lr economic growth
change in quality or quantity of factor inputs
lr economic growth - diagram
lras shifts right, yfe moves to yfe2 (higher productive potential - potential economic growth). if actual output increases too (ad and lras) = actual economic growth
policy objective of economic growth
expanding the availability of resources to increase standard of living
calculate economic growth rates
percentage change
what do we use to measure total produced output
real and nominal measurements
nominal value
value of an economic variable based on current prices taking no account of changing prices through time
real value
value of an economic variable, taking into account changing prices through time
real/nominal example
last year a tub of ice cream was £3 now its £3.30. volume of consumption not changed but spending has. real consumption still £3 but nominal value has increased to £3.30
converting nominal measures to real
price index: a way of comparing the value of a variable with a base observation eg over time
how to calculate price index
price index = (nominal/real) x 100
how to calculate real value
(nominal/price index) x 100
whats gdp
a measure of a countrys value of output usually after adjusting for changes in price level (real gdp) - equal to a countrys total income and expenditure
whats nominal gdp
national output measured in terms of prices of the year in question
whats real gdp
nominal gdp with the effects of inflation removed
how to calculate real gdp
(nominal gdp figure/current year price index) x base year index (always 100)
whats gni
gdp + net income from abroad (more helpful to measure standard of living)
whats gdp per capita
average level of gdp per head of the population
how to calculate gdp per capita
divide gdp by population (x1000 to convert billons to millions)
problems with gdp to measure standard of living
gdp/gni per capita doesnt look at happiness, health, or freedom. distribution pf wealth is also not accounted for
whats a recession
when actual growth (gdp) falls or is negative for 2 or more consecutive quarters
whats the economic cycle
a phenomenon whereby gdp fluctuates around an underlying trend, following a regular pattern
whats the trend rate of economic growth
the average sustainable rate of economic growth over a period of time. can be maintained without inflationary pressures
what affects the trend rate of EG
SAME THINGS THAT AFFECT LRAS
benefits of EG
firms make more profit, higher wages and employment, more job opportunities, more tax revenue, less gov spending on benefits, more investment, better fiscal position (less borrowing by the gov)
costs of EG
income inequality, demand pull and cost push inflation, negative externalities from industrial expansion, uses up finite resources
costs of a recession
firms may close down, less tax revenue, more gov spending on benefits, less investment
benefits of a recession
some firms may benefit like discount retailers, firms may face up to inefficiencies so may benefit in the long run