2.1 Economic Performance and its Indicators - Economic Growth Flashcards
Define economic growth, actual economic growth and potential economic growth.
Economic growth is defined as an increase in the Real GDP.
Actual growth is the increase in national output actually produced for a given period of time.*
Potential growth is the increase in the productive capacity of the economy for a given period of time.**
*Actual growth is measured by the change in real GDP.
**Potential growth is influenced by an increase in the quality or quantity of resources.
Why is sustained and inclusive economic growth important?
Sustained economic growth can go towards the ultimate aim of raising consumption level to improve the living standards of society.
Inclusive economic growth ensures equity and minimises the increase of income disparity amongst the residents of a country.
Define Gross Domestic Produce (GDP), nominal GDP, and real GDP.
GDP is the value of all final goods and services produced within the geographical boundary of a country over a given period of time.
Nominal GDP is the value of the final goods and services produced in a given year expressed in terms of the prices in that same year.
Real GDP is the value of final goods and services produced in a given year expressed in terms of the prices in a base year.
List the formulae for nominal GDP, real GDP, and the economic growth rate.
Nominal GDP = Price at current year * Quantity of current year
Real GDP = Price at base year * Quantity of current year
Economic Growth Rate = (Real GDP of the current year - Real GDP of the previous year) / Real GDP of the previous year * 100%
Define Gross National Income (GNI).
GNI measures the value of all final output of goods and services produced by nationally owned factors of production during a given period of time.
What is the difference between GDP and GNI?
Domestic production refers to the production within a country’s geographical borders (regardless of the origin of the FOPs) while national production refers to production from FOPs owned by citizens of a country (regardless of the country in which production occurs).
This can be represented by the equation GNI = GDP + NFIA, where NFIA is the net factor income from abroad.
What are the limitations of using GDP/GNI as a indicator of economic growth/economic levels of a country?
- The presence of non-market activities, i.e. of that are not bought or sold in a market, leads to the calculated GDP/GNI value being less than the actual GDP/GNI levels | Especially evident in developing countries due to the high level of non-market actvities
- Presence of an underground economy, both illegal and legal activities lads to unreported transactions | Aided by better communications technologies allowing transactions to occur informally in ways such that production is unrecorded
Define sustainable growth.
Sustainable growth refers to a rate of economic growth that can be maintained without creating other significant economic problems (such as depleted resources and environmental problems, particularly for future generations).
It implies a positive and stable growth rate over an extended period of time.
What is the difference between non-marketed goods and the underground economy?
Overall both limitations affect the calculations of GDP/GNI similarly.
The underground economy involves market transactions that are hidden, while non-marketed goods were never intended for sale in a formal market.
Define inclusive growth.
Inclusive growth refers to a rate of growth that is sustained over a period of time, is broad-based across economic sectors, and creates productive employment opportunities for the majority of the country’s population.
