Theme 2 - Economic Growth Flashcards
Items included in the GDP calculations.
Food
Public transport
Cars
All goods and services produced in an economy.
What are real and nominal figures of GDP?
Real : the value of economic variable taking into account the changing prices through time.
Nominal : the value of an economic variable based on the current prices, no account for changing prices.
Price index = (nominal / real) * 100
What is long run and short run economic growth?
Long run : it is also known as potential economic growth, it is an expansion of productive capacity. Shown by a shift in the PPC out.
Short run: this is knowing as actual economic growth, it is caused by an increase in AD or better utilisation of current factors of production.
Key factors affecting short run economic growth?
Interest rates Exchanges rates Trading conditions abroad Fiscal policy Commodity prices Confidence of businesses or households
Key factors affecting long run economic growth?
Research Innovation Enterprise Productivity Labour supply Investment.
Key drivers of economic growth?
Expanding the capital stock Increasing the active labour supply Extracting and selling natural resources Driving innovation Improving factors of production
Sources of economic growth
Short run : increased labour force, or maximising current factors of production.
Long run : increase in quantity or improvement of quality of factors of production.
Capital as a source of long run economic growth
- increase productive capacity by implementing technology.
Net investment = gross investment - depreciation.
Labour as a source of long run economic growth
- improve quality by training schemes / apprenticeships.
* increase quantity by providing incentives to work.
How best to sustain economic growth in the long run?
- building trust
- growing intra-regional trade
- improving institutions
- macro policies to control inflation.
Constraints of economic growth
- infrastructure gaps
- primary export dependency
- macroeconomic instability
- insufficient private savings
- rising income inequality.
Difficulties using GDP to make international comparisons of growth and standards of living?
- different populations
- inequality in income distributions
- accuracy of data
- size of the informal sector
- social impacts
- exchange rates
What is gross national happiness?
It is a measure of national well-being
It measures education, environment, financial well-being.
Other measurements of economic growth?
- total value added
- total expenditure in the economy
- total amount of income earned : income earned in the UK
GNI (gross national product) includes income earned abroad.
Problems comparing GDP in countries
Population, external factors, hidden economy, needs to purchasing power parity and different countries have different rates of growth.
