Economic Growth 4 (J) done Flashcards
economic growth definition
the increased capacity of an economy to satisfy more of its consumers wants and needs over a given period of time, usually one year
economic growth should mean increased…
living standards, if the productive capacity growth is faster than population growth
aggregate demand is determined by:
- level of employment
- level of disposable income
- consumer confidence
- interest rates
aggregate supply is determined by:
- cost in inputs
- access to resources
- government policy
- natural disasters
nominal GDP:
not adjusted for inflation
nominal GDP formula:
real GDP x price index for given year
_______________________________________
100
real GDP:
accounts for inflation
real GDP formula:
nominal GDP (GDP at current prices)
_______________________________________ X 100/1
price index for the given period
real GDP growth rate formula
GDP year 2 - GDP year 1
__________________________ x 100
GDP year 1
3 methods of measuring GDP
- income received method
- total expenditure method
- values added method (production/output)
income received method:
people receive an income in return for the resources they contribute to production, value of production can be measured in terms of income received. Information is available from taxation records
total expenditure method:
the money people are prepared to spend on goods and services can be measured through market transactions
value added method:
at each stage of production, an output can be either sold as a finished good, or used as an input for another good
4 things to avoid when compiling GDP
- multiple counting
- intermediate goods are not counted
- used goods are not counted
- transfer payments do not count
real GDP per capita:
the volume and quality of goods and services produced per head of population per unit of time
APF
shows the difference levels of productivity/ output from different combinations of labour/capital input.
combinations eg.
increased labour
increased capital
increased training and education
GDP per capita formula
GDP
______________
population
productivity formula
input
________
output
productivity:
- level of technology per worker
- level of physical capital per worker
- level of human capital per worker
law of diminishing returns
with each additional input, output goes down
sources of EG: demand factors
- population growth
- the basis of demand is long term population growth
- increases demand for g/s
- adds to the supply of labour
- desire of people to increase their welfare based on increased income levels
sources of EG: supply factors
- growth dependant on the ability to supply the demand for the greater satisfaction of wants
- increase the amount of capital equipment per worker
- assists in the efficient production process
- expanding resources base or using present resource base more effectivly
land: quantitate supply factors and qualitative supply factors
Quan: exploration location of iron ore, reclamation of land irrigation
Qual: scientific techniques, fertilisation
labour: quantitate supply factors and qualitative supply factors
Quan: migration - import skills
Qual: training courses
capital: quantitate supply factors and qualitative supply factors
Quan: increased savings - investment
Qual:
enterprise: quantitate supply factors and qualitative supply factors
quan: innovation
qual: management training
technical efficiency:
combining resources more productivly
allocative efficiency:
minimising waste of resources by directing resources to where they are most useful
dynamic effiency:
the ability to adapt and change over time
benefits of EG
- increase in goods available for consumption
- facilitates income redistribution (trickle down)
- increase in general standard of living
- increase in production
- wealth generates may trickle down to those who are poor by means of income distribution
- improvement in welfare funded by income distribution
costs of EG
- not all income distributed equally
- wealth often in the hands of a few
- “trickle down” does not always seem to work in practice
- corruption may reduce redistribution effects
- spending on weapons do not benefit population as a whole
- inflation risks
- environmental problems - pollution
GDP does not take into account
- household work
- voluntary work
- cash transactions (not included in tax returns)
- productivity (input/output)
- changes in quality of goods and services
- externalities
- unemployment, hours worked, working conditions
