Economic growth Flashcards
What is nominal GDP?
The monetary value of GDP adjusted for inflation.
Problems measuring economic growth
Output method
Risk of double counting
Raw materials must not be counted twice.
Example: car
Difficulties of measuring economic growth
Income method
Transfer payments must be excluded as only incomes earned in producing products must be included.
Difficulties of measuring economic growth
Country output
Undeclared activity
Understate true level if output
Black markets
Difficulties of measuring economic growth
Need to measure inflation accurately
Adjusted to get real GDP.
Price index
Price index = 100 * (nominal GDP/Real GDP)
Real GDP Calc
Real GDP = Nominal GDP * (100/price index)
Nominal GDP calc
Nominal GDP = Real GDP / (100 / price index)
Short-run economic growth
Components of AD
Changes in cost of production
Long run economic growth
Changes is quality and quantity
Difference between actual growth and potential growth
PPF
B point middle of PPF1
A under PPF1
SR growth A-B
LR growth ppc1-ppc2
Short run for the could be due to
Expansionary fiscal policy
Expansionary monetary policy
Autonomous increases in AD
Ways LR an be achieved
Quality and Quantity of CELL factors
Output gap fringe
Measure of the difference between actual and potential output.
If potential output increases at a faster rate than actual output then we get an increase in spare capacity in the economy.
Absolute poverty define
Anyone who is living on $1.25 a day I.e. Anyone whose basic human needs are not met e.g. Water
