ECONOMIC GROWTH Flashcards
How is economic growth measured by
Economic growth is measured by the annual change in real Gross Domestic Product. For Australia, the desirable rate is 3.5 per cent per annum.
Desirable growth rate of GDP
Between 2-3%
Economic growth leads to
higher standard of living,
higher real income,
higher levels of consumption
If economic growth is slower
The economy may not be able to employ its resources, especially labour, causing unemployment rate to be higher than desirable
If economic growth is higher
If growth is too rapid, inflation pressure will build if total demand is growing faster than the capacity of the economy
When does real gdp person increase
As long as the growth in real GDP exceeds population growt
What is Gross Domestic Product
The total market value of all final goods and services produced in an economy during a given time period
What is economic gorwth
Rate of change in real GDP from year to year
What does Real GDP per capita measure
It is measure of a country’s living standard.
What does Real GDP per capita tell about income in a nation
It reflects the average value of income per person
Why does GDP not reflect true value of production
The value of non-market goods and services is not offically estimated. Hence GDP understates the true value of production by omitting non-market activities
What are non-market goods and services and examples
Goods that are not exchanged for payment such as VOLUNTARY WORK, HOUSEWORK.
They do not contribute to material welfare
What is utility and why does GDP understate it
GDP understates changes in utility. Utility refers to the ability of good or service to satisfy wants. Refers to the usefulness or enjoyment a consumer can get from a good or service
Three things that GDP does not measure and account for
Utility, Non-market goods, productivity
How could GDP overstate growth
If GDP increases because more people worked overtime , or held two jobs, then we might question whether rising welfare costs were the costs of achieving it
