3.1 Economic Growth Flashcards
economic growth
growth in GDP (value of output) over time
gross domestic product (GDP)
total value added of goods and services produced in the country in a year
GDP per capita
GDP divided by the population
(only an average figure - actual GDP will be distributed unevenly, GDP per capita is the most common way of measuring standard of living for comparisons)
calculate rate of growth?
rate of growth = (change in GDP / original GDP) x 100%
boom
period of high economic activity and high levels of employment
recession
period where country’s GDP falls for two (or more) consecutive quarters
How does economic growth come about?
comes about because the economy is able to supply more goods and services - due to supply-side factors (ways in which the economy’s ability to produce output can increase).
factors of production (CELL) are needed in order to do this.
How is investment a determinant of economic growth?
Investment = spending on capital goods.
> investment = economy has ability to produce > goods and services in the future
How is technological progress a determinant of economic growth?
quality of capital goods improves + given quantity of capital can produce more output than before (more quality + quantity of goods and services).
How is education and training a determinant of economic growth?
Better education + training = better quality + quantity of work done due to a more skilled workforce
How is labour productivity a determinant of economic growth?
measured as the output per worker over a period of time.
higher productivity will encourage economic growth = largely determined by investment in capital, technological progress and education and training.
How is workforce size a determinant of economic growth?
economy produces more if it has more FoP labour
How are natural resources a determinant of economic growth?
if country discovers/develops = stimulus to economic growth.
How are government policies a determinant of economic growth?
economic system - market economies (capitalism) are seen as most efficient system to help achieve economic growth compared to command economic systems (communism), e.g. between North and South Korea.
more economic growth = government investment in infrastructure (basic systems + services economy uses to work effectively)
governments of mixed economies take responsibility for macroeconomic management of economy - can affect both supply and demand to encourage economic growth
Benefits of economic growth?
rise in material living standards: > output available to consume than before + GDP per capita rises (GDP rises at faster rate than population = materially better off)
reduction in poverty: outputs + incomes rise = > tax revenue which can be used to raise living standards of those with lower incomes
rise in population welfare: tax revenue can be spent on services such as health + education = improve general welfare of population of country - QoL increases as living standards increase and deaths decrease + better employment = more econ growth in future - domino effect
rise in employment + fall in unemployment: >workers required to produce extra output brought about by econ growth
Costs of economic growth?
environmental costs: production + consumption of goods + services = >pollution - land, air, water, noise
air pollution: damages health
global warming: greater global output = global warming?
congestion: econ growth often conc in certain (urban) areas = pressure on services, > commuting time = lower QoL?
loss of non-renewable resources: uses irreplaceable resources = unsustainable - can also lead to extinction directly or as result of externality
lower QoL: materially better off but worse lifestyles? e.g. obesity, depression, less exercise
income + wealth inequalities: benefits can be very unevenly spread - rich and poor gap can widen
inflation: price level may rise? demand pull inflation as total supply <total demand
4 key macroeconomic objectives?
- Low unemployment (~4%)
- Sustainable economic growth
- Favourable trade balance (exports > imports)
- Low and stable inflation (~2%)
