6.3 – Output and Growth Flashcards
What is national output?
The total value of output of goods and services produced
What is National Income?
The total amount of income earned by factors of production ,including entrepreneurs and workers, in a macroeconomy
What is National Expenditure?
The total spending of firms and individuals on goods, services and resources, in a macroeconomy
What is the National Output, Income and Expenditure Formula?
National Output = National Income = National Expenditure
What is Gross Domestic Product (GDP)?
The total market value of all final goods and services provided within an economy by its factors of production in a given period of time.
What is Nominal GDP?
The value of output, income and expenditure in an economy measured at their current market values or prices is the nominal GDP. However, these values will rise overtime as a result of inflation.
What is Real GDP?
The value of output, income and expenditure in an economy measured assuming the prices are unchanged over time. This GDP, in constant prices, provides a measure of the real output of a country. Here, the impact of inflation on monetary values is excluded.
Why is measuring GDP important to the government?
The government will know about the allocation of resources in the economy and how much they are producing. This will help in making efficient economic decisions and policies and how they may affect the resource allocation and production.
It allows comparisons to be made of the living standards in one year compared to that of the next.
It allows comparisons to be made of living standards in different countries.
What are the Causes of economic growth?
Discovery of more natural resources
Investment in new capital and infrastructure
Technical progress
Increasing the amount ans quality of human resources
Reallocating resources
What are the benefits of economic growth?
Greater availability of goods and services
Increased employment opportunities and incomes.
Increased sales, profits and business opportunities.
Low and stable inflation, if growth in output matched growth in demand.
Increased tax revenue for government (as incomes and spending rise) that can be invested in better public services.
improved living standards and economic welfare
What are the drawbacks of economic growth?
Technical progress may replace employees
Scarce resources are used up rapidly when production rises
Increasing production can increase negative externalities
Inflation can rise if growth in demand exceeds growth in output
What is Sustainable Economic Growth?
A rate of growth which can be maintained without creating other significant economic problems, especially for future generations.
What are the Economic Phases?
Growth is the phase where the economy is growing. Everything is great!
Boom refers to the highest point of economic growth. Things are OK!
Recession is the phase where there is negative economic growth, that is real GDP is falling. Things are bad!
Slump is the lowest point of recession where aggregate demand, output, incomes and prices are at the lowest. Things are awful!
Recovery is the phase after a slump where the GDP starts to increase and the economy recovers. Things are slowly getting better!
How does the GDP per head/capita method of Measureing living standards work?
measures the average income per person in an economy. Since this takes into account the population, it provides a good measure of the living standards of an economy.
Real GDP per capita = Real GDP per head / Population
What are the Disadvantages of this method?
It takes no account of what people can buy using their incomes
Distribution of income is very unequal in reality
Real GDP per head excludes the unpaid work people do.
