Unit 4.4 - Economic Growth

• Economic growth


  A key indicator of macroeconomic performance, indicating an increase in the economy's output

  
• Output needs to increase by more than the growth in population
• Economic growth


  Not the same as economic development
• Economic growth


  Measured by changes in real GDP
• Measuring GDP


  1. Measure GDP in the prices operating at the time

  2. Take out the effects of changes in the price level to get real GDP
• Nominal GDP


  Total output measured in current prices
• Real GDP


  Total output measured in constant prices
• Constant prices


  Prices in a base year
• Base year


  The starting year in an index and given a value of 100
• Price index


  A way of comparing changes in the price level over time
• GDP deflator


  The price index used to measure domestically produced goods and services

  
• Recession


  A decline in real GDP over at least two consecutive quarters (6 months)
• Calculating the GDP deflator

  Real GDP = nominal GDP x price index in base year / price index in current year
• Causes of economic growth

  • Increase in the quantity of resources
  • Increase in the quality of resources
• Consequences of economic growth

  • Opportunity costs
  • Increased stress and anxiety
  • Depletion of natural resources
  • Increased availability of goods and services
  • Increased living standards
  • Increased tax revenue
  • Rise in employment
  • Increase business and consumer confidence
  • Encourages investment
  • Improve a country's international prestige and power
• Economic growth in low income countries
• The costs and benefits of economic growth