Lesson 25- Economic Growth Flashcards
What are the two areas that economics can be divided into?
Macroeconomics
Microeconomics
Define macroeconomics
Study of large economic systems such as those of a whole country or area of the world
Define microeconomics
Study of small economics systems that are part of national or international systems
What are the 6 macroeconomic objectives?
1.Reduction in the level of unemployment
2.Achieve price stability
3.Economic Growth
4.BOP stability
5.Protection to the environment
6.A reduction in the inequalities in the distribution of income wealth
Define national income
Value of income, output or expenditure over a period of time
How is economic growth measured?
GDP
Define economic growth
An increase in the total output of goods and services in an economy over a period of time/ an increase in the real GDP per capita over a period of time.
What is an accurate measure of economic growth
Real GDP per capita
State 5 methods to achieve economic growth
1.Discovery of natural resources
2.Increase in investments
3.Human Capital investments
4. Reallocation of resources
5. Improvements in technology
4 benefits of economic growth
- Higher incomes
- Better infrastructure
- Higher life expectancy
- Reduced unemployment
6 costs of economic growth
1.Scarce resources in a country will be exploited leaving an opportunity cost for future generations.
2.May lead to unemployment due to the introduction of modern production techniques and equipment
3.An increase in production will lead to an increase in pollution
4. A rise in incomes will lead to a rise in aggregate demand which may cause demand pull inflation
5. May lead to a deficit in the BOP since high incomes will encourage people to import from abroad
6. There will be a opportunity cost as firm will be producing more capital goods that consumer goods.
Limitations of GDP 5
- Economic growth may be misleading if the increase in output is merely an increase in price levels. Therefore the real GDP should be calculated
- Rising GDP figures can be misleading if there was an increase in population. Therefore GDP per capita should be calculated.
3.Statistical errors - The value of home produced goods
- Externalities such as pollution can be generated which will lead to a fall in the living standards.
What is the economic cycle
This refers to the various stages of real GDP that a country passes through over a period of time
