Topic 7: Economic Growth

Question 1

What is Economic Growth?

Answer 1

Economic Growth is defined as an increase in the real output of goods and services produced in a country

Question 2

What is the desired Rate of growth?

Answer 2

3%

Question 3

What is sustainable economic Growth?

Answer 3

A rate of growth which can be maintained without creating other significant economic problems for future generations

Question 4

Price stability

Answer 4

Low rates of inflation (2-3% per annum in Aus)

Question 5

Full employment

Answer 5

Occurs when everyone who is willing to work can find employment

Question 6

GDP

Answer 6

The total market value of all final goods and services produced in a c country during a period of time ( usually a year)

Question 7

Calculation

Answer 7

Real GDPy2 - GDPy1/ Real GDPy1 x100

Question 8

Nominal GDP

Answer 8

The value of output expressed in the prices of the day (current prices)

Question 9

Real GDP/ constant price

Answer 9

Adjusted to remove the effect of price increase ( removes effects of inflation)

Question 10

What does GDP measure?

Answer 10

Measures the total dollar value of the goods and services made and purchased within one year

Question 11

Limitation 1

Answer 11

GDP doesn’t necessarily value all of the activities that enhance our well-being (benefits) nor those that diminish it (cost)

Question 12

Limitation 1 explained

Answer 12

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

Question 13

Limitation 2

Answer 13

Doesn’t account for rising productivity

Question 14

Determinates of Economic Growth

Answer 14

Land, labor, Capital

Question 15

Land

Answer 15

Natural resources are the foundation of economic growth in the early stages of a country’s development eg the good boom

Question 16

Labour : Natural and Migration

Answer 16

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

Question 17

Real GDP per capita calculation

Answer 17

real GDP/ population

Question 18

Alternative measures to GDP

Answer 18

• Measure of economic Welfare
• The index of sustainable economic Welfare
• The Genuine Progress Indicator

Question 19

Labour : Workplace participation trends

Answer 19

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

Question 20

Rising productivity - capital deepening

Answer 20

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

Question 21

Rising Productivity - Multifactor productivity

Answer 21

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

Question 22

Cost 1

Answer 22

Structural unemployment - some workers will be displaced as some skills, become redundant

Question 23

Cost 2

Answer 23

Inequality - Higher growth causes an increase in income inequality

Question 24

Benefit 1

Answer 24

Increases living standard - Growth increases real GDP per capita which means an increase in average income per person

Question 25

Benefit 2

Answer 25

Increase leisure time - High productivity means fewer working hours to achieve the same income

Question 26

Trends

Answer 26

GDP rose 0.1% in the first 3 months, economy grew 1.1%
Rising interest rates, persistent inflation, and global uncertainty