Output and Growth Flashcards
Describe the relationship between national output, income and expenditure
They are all equal and can each be used to measure the output of an economy
We can measure total output in three ways because the value of output is also equal to the total amount spent on purchasing it, which in turn is used to pay for the resources used to produce it, i.e. factor incomes including wages and any profits.
In practice, however, the values are not always exactly the same as economic activity is complex, and people may try to hide their incomes to avoid taxes.
Define
gross domestic product (GDP)
The total market value of all final goods and services produced within an economy by its factors of production in a given period of time. It can also be measured by total expenditure on domestically produced goods and services or total factor income.
Define
gross value added (GVA)
The difference between the market value of an output and the cost of non-labour inputs used to produce it. GVA is therefore broadly equal to total profits plus total wages.
Measuring GDP by output is therefore equal to the total value added to resources in an economy through the production of goods and services.
What is the difference between nominal and real GDP?
Nominal GDP: The total market or monetary value of the GDP of an economy. However, as this doesn’t take into account the effect of inflation, it can be a misleading indicator of the changes in total output.
Real GDP: The value of the total output or income of an economy after adjusting for changes in price inflation over time. It is a measure of economic growth in the GDP of an economy assuming prices have remained constant over time
List 3 ways in which GDP statistics cn help governments and economists
- If a government is better informed about the allocation of resources in its economy and how much they are producing, it can make better decision on economic policies and what effect they will have
- It is one way of making a comparison of the standard of living in one year compared with the next
- It is one way of making a comparison of the standard of living between different countries or different regions within the same country
Define
economic growth
A sustained increase in the total output or real GDP of an economy.
Economic growth can be represented on a PPC by an outward shift in the frontier.
If the total supply of goods and services can increase over time with rising demand then they can be enjoyed without an increase in their prices. Economic growth can therefore help to keep price inflation low and stable in an economy,
List 5 ways in which an economy can expand its productive potential and achieve long-term growth
- the discovery of more natural resources
- however, searching for new natural resources costs a lot of money that some countries lack
- investment in new capital goods and infrastructure
- by lowering interest rates, a government can make it less costly for private firms to borrow money for investment
- technical progress, including the discovery of new man-made materials and more efficient equipment, processes and products
- governments can encourage the R&D of new products and processes by subsidies, tax breaks and protecting new inventions through the issue of patents
- increasing the amount and quality of labour through more and better health care, education and training
- the working population can also be increased by increasing retirment age, immigration of skilled labour and increased birth rate
- a more efficient allocation of resources
Define
economic cycle
The recurrent pattern of fairly predictable fluctuations in the growth rate of real GDP over time.
List the 4 stages of the economic cycle
- Growth (expansion)
- Economic boom (peak)
- Economic recession (downturn)
- Economic recovery (upturn)
Define
economic boom
A period following economic recovery and growth in an economic cycle, characterized by an economy working at full or near-full capacity with a low level of unemployment and aggregate demand, sales and profits at or near their peak, and often accompanied by rising inflation.
Define
economic recession
A general slowdown in the rate of economic growth in an economy following an economic boom. Officially, it is usually associated with prolonged period of negative growth in real GDP.
Define
economic recovery
A period following an economic recession in an economic cycle during which aggregate demand, output, employment and incomes begin to rise.
What does each of the following indicate?
- U-shaped recession
- V-shaped recession
- Double-dip recession
- Prolonged slump in economic growth
- Short-lived contraction in the economy followed by rapid and sustained economic recovery
- Two periods of recession
What are the benefits of economic growth?
- greater availability of goods and services to satisfy consumer wants and needs
- increased employment oppurtunities and incomes
- increased sales, profits and business oppurtunities
- low and stable price inflation, if growth in output matches growth in demand
- incresasing tax revenues for the government, which can be invested in public and merit goods
- improved living standards and economic welfare
What are the possible negative impacts of economic growth?
- The benefits of growth may be concentrated among relatively few people, so the distribution of wealth is uneven
- Techinical progress may replace labour with machines
- Growth might only be achieved by producing more capital goods at the expense of consumer goods, and people may not necessarily be better off with the goods that are produced
- Scarce resources are used up at a faster rate
- Increasing pollution and damage to natural environment
