Chapter 3: Economic Growth Flashcards
Economic growth definition
The sustained expansion of production possibilities
How is economic growth measured?
Increase of real GDP over a time period
Total income method
Total income produced by firms when producing things
Total expenditure method
Total expenditure by consumers on everything produced
What’s the Rule of 70?
Method for calculating how long it takes for something to double.
70/x%
What’s the GDP growth rate?
Relationship between growth rate of real GDP and growth rate of real GDP per person
Growth of real GDP
Tells us how rapidly the total economy is expanding
Growth of real GDP per person
Tells us how the stabdard of living is changing
Reasons why Real GDP can increase
- Unemployment decrease
- Potential GDP decreasing
What’s Potential GDP?
Maximum level of real GDP that can be produced while avoiding shortages of labour, capital, land, etc. which would result in inflation
Level of production produced at full employment
What’s demand for labour?
Quantity of labour demanded and real wage rate
What’s real wage rate??
Quantity of goods and services an hour of labour earns
Money wage rate divided by price level.
What’s money wage rate?
Number of dollars an hour of labour earns
What’s supply of labour?
Quantity of labour supplied and real wage rate
What’s labour market equilibrium?
Labour market at full employment
