Macroeconomics - L5 Measuring Economic Growth Flashcards
What does economic activity refer to?
The real value of production (goods and services), employment, incomes and expenditure in an economy.
Why do we need to continue to increase levels of economic activity (or levels of production) within the economy?
To ensure that we continue to improve our living standards.
What does economic growth refer to?
Any increase in the amount or level of national production (economic activity) that has occurred over time.
How is economic growth measured?
Economic growth is measured using Gross Domesic Product (GDP).
What does GDP represent?
The final market value of all goods and services produced in the Australian economy over a given period of time.
What formula is used to calculate GDP per annum?
GDP =
(Year 2 – Year 1)/Year 1
x 100
What formula is used to calculate GDP per quarter?
GDP =
(Qtr 2 – Qtr 1)/Qtr 1
x 100
What is the difference between Nominal GDP and Real GDP?
Real GDP is adjusted for inflation while nominal GDP is not.
Real GDP measures the actual increase in goods and services and excludes the impact of rising prices.
What is GDP per capita?
The measure of total GDP divided by the population.
Identify two limits to using GDP to measure living standards.
- Real GDP does not measure all the activity that contributes to people’s material living standards. e.g. home cooked meals, unpaid care and food grown in your backyard.
- Real GDP does not consider whether the increased output results in people having less leisure time or becoming more stressed.
- Real GDP does not consider negative externalities such as pollution.
- Real GDP does not measure “black market” operations, such as bartering and cash transactions that are not reported, or illegal activity.
- Real GDP per capita (per person) does not tell us how the output is distributed.
