Economic growth Flashcards
What is economic growth?
it measures the rate of change of a country’s output. key measure is Gross Domestic Product (GDP)
What is GDP?
calculates the sum of all goods and services, or level of output, produced in the economy over a period of time, e.g one year
What are the benefits of economic growth?
- job creation
- rising incomes
- improved standards of living
- improved international competitiveness of the UK economy
- tax revenues likely to increase so gov can re-invest on infrastructure or spend on public services
What does a macroeconomic PPF show?
what the economy can produce, assuming that labour, capital and land at the country’s disposal are employed to the full, and given a state of technical progress.
What are capital goods? + example
durable good used in the production of goods or services. e.g roads, airports, telecommunications
What are consumer goods? + example
the end result of production and manufacturing and are what a consumer will see on the shelf. e.g food, clothes, furniture
What does long-run economic growth do?
- increase in total productive capacity
- outward movement/shift of PPF
What does short-run economic growth do?/ When does it occur? (economic recovery)
- growth of real output
- occurs when there are unemployed resources in the economy
- makes use of spare capacity
Causes of outward shifts on PPFs
- higher productivity
- better management of factor inputs
- increase in stock of capital and labour supply
- innovation of technology
- discovery of new natural resources
What is nominal GDP?
GDP measured at the current market prices, without the effects of inflation
What is real GDP?
a measure of all the goods and services produced in an economy, adjusted for price changes or inflation. Reflects changes in the total output, rather than the price level.
What GDP is economic growth measured in?
Real GDP
What is the difference between real and nominal GDP?
nominal GDP is real GDP multiplied by average current price level for the year.
What does the change in real GDP measure?
the economy’s rate of growth
How does the change in nominal GDP affect growth rate?
it overstates/understates it
