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Flashcards in Economic Growth Deck (21):

define economic growth

the expanison of the productive capacity of a country


What is short run economic growth?

An increase in output, with existing resources


What is long run economic growth?

Represents an increase in productive capacity (move outside PPC)


How is short run economic growth measured?

measured as annual changes in real GDP, recoreded as % change


How is long run economic growth meausred?

by averaging out annual growth rates over longer periods of time.


Problems with measuring economic growth? (4)

- the volume of data to be collected involves degrees of inaccuracy and omissions
-Omissions relate to non-market activities
-non-marketed government services like free health care need to be valued.
-Omissions also refer to informal economies like illegal activities.


Benefits of economic growth? (6)

-Growth of the economy's productive capacity permits increased consumption and increased investment, which increases standard of living.
-Economic growth produces increased employment opportunities.
-Leads to business confidence.
-linked to increase in trade competitiveness
-increases the tax revenues of governments leading to more public spending.
-Expansion of an economy's productive capacity decreases the risk of inflation


Costs of economic growth?

-Leads to externalities like pollution and health problems
- It gives no indication to the distribution of the wealth.


Causes of economic growth? (4)

-Consumption by households
-Spending by firms
-Government spending
-Export spending


Causes of economic growth, Consumption by households?

-Decreasing tax ---> More disposable income
-Quantitative easing ---> Borrowing is easier and cheaper interest rate.


Causes of economic growth, Government spending?

-Jobs creation
-Raise benefit leveles


Causes of economic growth, Spending by firms?

-Decrease co-orporation tax
-Reduce interest rate
-Government subsidies


Causes of economic growth, Export spending?

-Rising income levels in other countries
-Improved quality of goods
-Low exchange rate= exports cheaper.


Government macro-economic objectives to do with economic growth?

-Achieve a steady rate of economic growth, that is economic growth must be sustainable.
-To avoid fluctuations in growth output, that is economic sustainibility.


Define GDP?

GDP is the total value of output of goods and services in an economy in a given time period.


How is the value of GDP measured?

-Output method (cost of making it)
-Expenditure (market price)


How is the value of GDP measured (output method)?

-By summing the value of every industry's output. This method takes care to use value-added data to avoid double counting


How is the value of GDP measured (income method)?

-Summing the payments to the factors of production (wages, profits, interest, rent), which represents national income.
-It is necessary to exclude transfer payments


How is the value of GDP measured (expenditure method)?

-Take the types of expenditure:
Consumer expenditure, Investment expenditure, Government expenditure, Export expenditure.
-Subtract Import Spending.
-Don't include transfer payments


Define Nominal GDP?

The value of national output measured at current prices


Define Real GDP?

The adjust value of national output measured at constant prices, adjusted for inflation.