Powerpoint II - Economic Growth - Output Measures:

Question 1

economic growth definition

Answer 1

Refers to the increase in output ( Real Gross Domestic Product ) of an economy over a period of time.

Question 2

EG leads to rising

Answer 2

• Output
• Income
• Wealth
• employment
• S.O.L

Question 3

real gdp

Answer 3

Quantitative measure of the increase in productive capacity ( OUTPUT ) of an economy after adjusting for inflation.

Question 4

eco growth ( % )

Answer 4

( Current Real GDP - Prior Real GDP / Prior Real GDP ) x 100

Question 5

real GDP conversion calculation

Answer 5

Nominal GDP x Base CPI / Current CPI

Question 6

Inside PPF

Answer 6

Points inside the PPF means that some resources are being underemployed - inefficient.

Question 7

On Frontier

Answer 7

Points on the PPF means that all resources are being fully employed - efficient.

Question 8

Outside Frontier

Answer 8

Points outside the PPF are unattainable beyond maximum PRESENT production capabilities.

Question 9

Opportunity Cost

Answer 9

Cost of switching production from one good to the other.

Question 10

Economic growth can be achieved ( in relation to production of G+S )

Answer 10

Planned when the economy focuses on more capital goods than consumer goods.

Question 11

PPF assumptions

Answer 11

1. Resources used are remain finite
2. All resources are fully employed
3. Technology remains constant
4. Only two goods can be produced

Question 12

Outward Shift of the Frontier:

Answer 12

Economic growth from:
1. Additional resources discovered
2. Resources increase their productivity
3. Technology improves

Question 13

Business cycle definition

Answer 13

The Business cycle plots the changes in output over time. Actual Output ( red line ) versus the Potential long term sustainable growth in output ( blue curve ).

Question 14

Positive Output Gap Def

Answer 14

Occurs when actual GDP is temporarily above the long-term productive potential of the economy.

Question 15

positive output gap caused by

Answer 15

Hiring structurally unemployed or overtime
Unsustainable in long → high costs → high prices / inflation ( COST PUSH )

Question 16

Negative Output Gap:

Answer 16

Occurs when actual GDP is below the economy’s productive potential.
Cyclical UE
Lower inflationary pressures

Question 17

ECO INDICATORS ( Positive )

Answer 17

EG > 4%
UE < 4%
INDL > 3%

Question 18

ECO INDICATORS ( NEG )

Answer 18

EG < 3%
UE < 4.5%
INF < 2%

Question 19

Capital Widening:

Answer 19

Capital stock of machines keeps pace with labour force growth.
- Results in EG ( Increase in output )
- Productivity per worker remains same