Economic Growth Flashcards
Economic growth
An increase in the quantity or quality of goods and services
Gross Domestic Product
The total value of goods and services produced by the factors of production at a given time
Index numbers
A way of comparing the value of a variable with a base observation such as a period or location
- (value) / (base value) x 100
Nominal GDP
The total output measured in current prices that is not adjusted to inflation
Real GDP
The total output measured in current prices that is adjusted to inflation
Formula of GDP
(nominal GDP) / (current year price index) x 100
GDP per capita
The avergae level of GDP per head of the population
- GDP / population
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Difficulties in measuring economic growth
1. Shadow/informal economy
- the goods and services that are not declared
2. Non-marketed goods
- services that are not monitorised e.g childcar
- produced without money changing hands
- not shown as economic growth
Short Run Economic Growth
An increase in actual GDP
- (actual growth)
When does short run economic growth occur?
due to any changes in AD
Advantages of Consumption-Led Growth
- consumption is the biggest compoment of AD so dramatic change
- output increases, derived demand for labour increases, employment increases
- profits increase, can improve quality, exports increase
Disadvantages of Consumption-Led Growth
- not sustainable/volatile
- debt fuelled
- wealth effect
- demand pull inflation
- nature of good
- globalisation/changes in trends
Advantages of Investment-Led Growth
- non-inflationary growth
- quality increases so exports increase
- employment increases to use capital
- unit labour costs fall
- economies of scale
Disadvantages of Investment-Led Growth
- volatile
- capital labour substitution
- means of investment
- poor quality
- time lag
- lack of demand
- isolated investments
Advantages of Export-Led Growth
- injections into the circular flow of income
- output increases, derived demand for labour increases, employment increases
- profits increase, investments increse, can improve quality
Disadvantages of Export-Led Growth
What does export-led growth depend upon?
- having a diverse range of products so if demand for one good decreases still able to sell other goods
- if the benefits of export led growth is spread out in the economy
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Long Run Economic Growth
When there is an increase in the productive capacity in an economy
When does long run economic growth occur?
when there is an increase in quality and quantity of factors of production
Advantages of Economic Growth
- lower unemployment
- reduction in poverty
- international competitiveness
- increased standards of living
- tax revenue
Disadvantages of Economic Growth
- inflation
- worsening of net exports
- increases income inequality
- decreased standards of living
- environmental costs
What do the benefits of economic growth depend upon?
1. Government Policies
- depends on if spending on the right sectors
- depends on if targetting to improve productive capacity of the economy
- depends on if the government is not corrupt
2. Sustainability
- if long lasting economic growth
- making sure workers and capital is not burnt out and overworked so more productive
3. If wide spread
- depends on if every area is experiencing economic growth and not just one area
- economic growth cannot be dominated by a large industry only
- if not it would lead to income inequality
- look at GDP per capita to see if everyone is benefitted
4. Balance
- depends on the balance of the components of AD
- if AD is only increased by consumption as soon as it starts to decrease, economic gorwth also falls
- beneficial if all components increase because if one component decreases, economic growth wont fall as much
