Topic 7: Economic Growth Flashcards
What is Economic Growth?
Economic Growth is defined as an increase in the real output of goods and services produced in a country
What is the desired Rate of growth?
3%
What is sustainable economic Growth?
A rate of growth which can be maintained without creating other significant economic problems for future generations
Price stability
Low rates of inflation (2-3% per annum in Aus)
Full employment
Occurs when everyone who is willing to work can find employment
GDP
The total market value of all final goods and services produced in a c country during a period of time ( usually a year)
Calculation
Real GDPy2 - GDPy1/ Real GDPy1 x100
Nominal GDP
The value of output expressed in the prices of the day (current prices)
Real GDP/ constant price
Adjusted to remove the effect of price increase ( removes effects of inflation)
What does GDP measure?
Measures the total dollar value of the goods and services made and purchased within one year
Limitation 1
GDP doesn’t necessarily value all of the activities that enhance our well-being (benefits) nor those that diminish it (cost)
Limitation 1 explained
Timber furniture is a ‘good’ that satisfies a want. Economic ‘bads’ associated with making furniture include the loss of forests. The income created by the production of furniture may not compensate for the economic bads, especially when we consider that a forest provides many benefits over many years
Limitation 2
Doesn’t account for rising productivity
Determinates of Economic Growth
Land, labor, Capital
Land
Natural resources are the foundation of economic growth in the early stages of a country’s development eg the good boom
Labour : Natural and Migration
Natural increase crates immediate demand for goods and services but doesn’t increase the supply of labour until young people enter the workforce
Migration affects economic growth assuming that a large number of migrates are of working age, which creates both demand for goods and services and supply of labour it involves the transfer of knowledge, skills, and wealth from overseas
Real GDP per capita calculation
real GDP/ population
Alternative measures to GDP
- Measure of economic Welfare
- The index of sustainable economic Welfare
- The Genuine Progress Indicator
Labour : Workplace participation trends
High rates of participation are needed, changing social attitudes and views towards older workers and other factors have contributed to the higher rates of participation
Rising productivity - capital deepening
The driving factor for economic growth is the amount of produce per hour worked and is caused by capital deepening with an increase in the stock of capital relative to the other production resources and multifactor productivity
Rising Productivity - Multifactor productivity
Any factor that isn’t capital that improves workers’ ability to produce goods and services eg. labour developed by the provision of the basic building blocks of a productive workforce - social infrastructure
Cost 1
Structural unemployment - some workers will be displaced as some skills, become redundant
Cost 2
Inequality - Higher growth causes an increase in income inequality
Benefit 1
Increases living standard - Growth increases real GDP per capita which means an increase in average income per person
Benefit 2
Increase leisure time - High productivity means fewer working hours to achieve the same income
Trends
GDP rose 0.1% in the first 3 months, economy grew 1.1%
Rising interest rates, persistent inflation, and global uncertainty
