4.4 Economic Grpwth Flashcards
What is economic growth?
The increase in the output of goods and services or real GDP in an economy over a period of time
How is economic growth measured?
Using real gross domestic product (GDP).
Footnote
Real GDP accounts for inflation, providing a more accurate measure of economic growth
What does GDP represents
The total value of all final goods and services produced within a country over a year.
GDP is a key indicator of a country’s economic performance.
What is the difference between money GDP and real GDP?
Money GDP is the total output measured at current prices, while real GDP is adjusted for inflation. (+ inflation)
Real GDP reflects the actual growth in output without the distortion of price changes.
What are the two reasons money GDP can rise?
- Because the output of the economy increases
- Because the general level of prices increases due to inflation
Economists prefer to focus on output increases for a clearer view of economic growth.
Why do economists prefer the rise in output over price level increases?
It gives a more accurate indication of the economic growth of the country.
Understanding real growth helps in formulating better economic policies.
What is real GDP?
The total value of goods and services produced in a country adjusted for rising prices (inflation).
Real GDP is essential for comparing economic performance over time.
How is real GDP calculated?
By taking into account inflation.
This calculation allows for a more accurate assessment of economic performance.
Fill in the blank: Economic growth is the increase in the output of goods and services or ______ in an economy over a period of time.
real GDP
This definition highlights the focus on measurable economic output.
What does the GDP deflator measure?
The current level of prices relative to the level of prices in the base years.
What is the formula for calculating the GDP deflator?
GDP Deflator = (Current year price / Base year price) x 100
What is the value of the GDP deflator for the base year?
100
What does a GDP deflator value greater than 100 indicate?
It measures the change in average prices of GDP.
How do you calculate real GDP using nominal GDP and the GDP deflator?
Real GDP = (Nominal GDP / GDP Deflator) x 100
What is the formula for calculating the economic growth rate?
Economic Growth Rate (t) = [(Real National Output (t) - Real National Output (t-1)) / Real National Output (t-1)] x 100%
What are the benefits of economic growth?
Economic growth leads to increased employment opportunities, rising sales and profits, higher tax revenue, and low unemployment.
How does economic growth affect employment opportunities?
Economic growth leads to increased employment as firms expand production, resulting in rising incomes and living standards.
What is the impact of economic growth on sales and profits?
During high economic growth, firms’ sales and profits tend to increase due to high consumer spending.
How does economic growth affect tax revenue?
Economic growth generally results in higher income for individuals and businesses, increasing government revenue from direct and indirect taxes.
What is a consequence of higher tax revenue from economic growth?
Higher tax revenue can be spent on improving public services and infrastructure or used to repay government debt.
What are the costs of economic growth?
Costs include exploitation of labor, rising production costs, rising inflation, unequal income distribution, depletion of non-renewable resources, and pollution.
How can economic growth lead to exploitation of labor?
The benefits of economic growth are not shared equally, leading to some individuals being exploited for their labor to satisfy demand.
What happens to production costs as the economy grows?
As the economy grows, resources become scarce, leading to rising production costs for firms.
What is the relationship between economic growth and inflation?
Economic growth can lead to higher inflation due to increased aggregate demand and higher production costs.
How does economic growth affect income distribution?
During economic growth, the distribution of income may become more unequal, benefiting the wealthy more than the poor.
What environmental issues can arise from economic growth?
Economic growth can lead to pollution, environmental damage, and depletion of non-renewable resources.
