Topic 2.1 - Economic Growth Flashcards
What is economic growth?
An increase in the total value/output of all goods and services produced in an economy in a given time period - also known as short run/actual economic growth
Measured in GDP
Brings benefits but also costs
What is long run economic growth?
Potential economic growth
An increase in the productive potential/capacity of the economy
Increase in total amount of goods and services that could possibly be produced
Show using a diagram short run economic growth using PPC
Show using a diagram long run growth resulting in actual economic growth - Keynesian and Neoclassical
Show using a diagram long run economic growth resulting in actual economic growth - PPC
Explain the policy objective of economic growth
Expanding availability of resources in an economy enables standard of living to increase, improves tax revenue and helps create new jobs
Economic growth seen as a fundamental objective
How to calculate economic growth rates
Change/original x 100
Problem - doesn’t take inflation into account
What is the nominal value?
Value of economic variables based on current prices, taking no account of changing prices through time
What is the real value?
Value of economic variables taking account of changing prices through time
What is the price index?
Way of comparing the value of a variable with a base observation (over time)
How do you calculate the price index?
Nominal/real x 100 = price index
What is GDP?
Measure of country’s value of output produced in a specific time period, usually after adjusting for changes in price level (real GDP)
Can be expressed as a % increase or decrease on previous period of time
= country’s total income and expenditure (circular flow)
What is nominal GDP?
National output measured in terms of prices in the year in question
What is real GDP?
Nominal GDP with effects of inflation removed
How to calculate real GDP?
= Nominal GDP figure/current year price index x base year index (usually 100)
