4.6 economic growth Flashcards
what is GDP
full form
(Gross Domestic Product) - the total market value of all final goods and services provided within an economy in a given period of time.
What are the 3 ways to calculate national output (GDP)
output
income
expenditure
What is national output
Total value of output of goods and services produced
Definition of national income
Total amount of income earned by all factors of production of a country, either employed domestically or internationally.
What all is included in the calculation for national expenditure
Total spending by individual households, firms and government organisations including spending on exports by overseas consumers but excludes spending on imported goods and services.
What are transfer payments
where are they excluded from
why are they excluded
They are unearned incomes. No productive activity has been done to receive those payments. They are excluded from the calculation of national income.
How to calculate national output
national income - national expenditure
What is GVA
Gross value added is the market value of its output goods or services minus value of inputs used in production of outputs.
What is GDP in relation to GVA
GDP is a measure of the total value added to resources in an economy through the production of goods and services
Name the 2 types of gdp
Nominal
Real
What is nominal gdp
Value of output produced in an economy in a period of time, measured at their CURRENT market values or prices
what is real gdp
value of output produced in an economy in a period of time, measured assuming the prices are unchanged over time.
Which gdp is used to compare a countries output year over year
Real GDP
What is GDP per head/capita
formula
represents what
GDP per capita = GDP / Population
Gives a good measure of the living standards in the economy since it measures the average output or income per person.
How do GDP statistics help a govt
Make better decisions on economic policies and resource allocation in production
Comparison of living standards year over year
Comparison of living standards in diff countries or diff areas in the same country
What is the definition of economic growth
The increase in a country’s real GDP or national income over a period of time
What does economic growth indicate
economy is utilizing its resources better or its productive capacity has increased
What are the 2 types of growth on a PPC and explain them
Potential growth - when a ppc shifts outwards
Actual growth - When the economy moves from a point inside the ppc to a point closer to the ppc
Name all the causes of economic growth
Discovery of more natural resources
Investment in new capital and infrastructure
Technical progress
Increase in quality or quantity of human resources
Reallocation of resources
How does a discovery of more natural resources lead to economic growth
disadvantage
more resources mean more the production capacity. But it costs a lot of money to find new natural resources, which many countries may not have the means to afford.
How does an investment in new capital and infrastructure lead to economic growth
Enables firms to expand their productive capacities. Could lead to an increase in scale hence leading to eocnomices of scale and lower average costs. The efficiency of production and hence output rises.
How does technical progress lead to economic growth
New inventions and production methods can lead to increase in productivity of existing resources in industries.
How does an increase in quality or quantity in human resources lead to economic growth
A larger and more productive workforce will increase GDP. More skilled, knowledgeable and productive human resources thus help increase economic growth.
Methods to increase quantity of labour (expansion of work force)
Cutting income taxes - may motivate more people to work
cutting unemployment benefits - forces people to work
Increase the retirement age
Inward migration
long run - increased birth rate
How does reallocation of resources lead to economic growht
Moving resources from less-productive uses to more-productive uses will improve economic growth.
What are the benefits to economic growth
Greater availability of goods and services to satisfy consumer wants and needs.
Increased employment opportunities and incomes.
In underdeveloped or developing economies, economic growth can drastically improve living standards and bring people out of poverty.
Increased sales, profits and business opportunities.
Rising output and demand will encourage investment in capital goods for further production, which will help achieve long run economic growth.
Low and stable inflation, IF growth in output matches growth in demand.
Increased tax revenue for government (as incomes and spending rise) that can be invested in public goods and services.
What are the drawbacks of economic growth
Could lead to a rise in unemployment - Technical progress which replaces labour.
Natural resources may get depleted
increase negative externalities - pollution, deforestation, health problems, etc
Inflation - if supply doesn’t rise at the same rate demand does.
Widens income inequalities - Rich investors and businessmen gain more than the working class and poor during growth
