Economic growth

• National Income


  Measures the monetary value of the flow of output of goods and services produced in an economy over a period of time
• Ways to calculate National Income

  • Output method
  • Income method
  • Expenditure method
• Output method


  • Measures the value of output produced by all sectors in the country
  • Needs to avoid double counting
• Dealing with double counting in output method

  • Adding the values of the final products
  • Totalling the values added at each stage of production
• Income method


  The value of output produced is based on the costs involved in producing that output, including wages, rent, interest and profits
• Expenditure method


  Estimates the value of the national output by recording only final expenditures on consumption, investment, government expenditure, exports and imports
• All 3 methods (output, income, expenditure) should give the same total because they all measure the flow of income produced in an economy
• Difficulties in estimating national income figures

  • The hidden economy
  • Inadequate information
  • Non-marketed goods and services
  • Valuation of Government Service
  • Cost of Environmental Damage
• Hidden economy


  Economic activity that is not declared to the authorities, either to evade tax or because it is illegal
• Non-marketed goods and services

  Products which are produced and which are not exchanged for money
• Valuation of Government Service

  It is very difficult to find the true values of government services provided free of cost, as there are no market prices
• The costs of environmental damage are not subtracted from the market value of final products when GDP is calculated
• Uses of National Income Statistics

  • Estimate the rate of economic growth
  • Compare economic performance between countries
  • Indicate changes in standard of living
  • Show the contribution of various sectors to national income
  • Reveal the distribution of income and wealth
• Gross Domestic Product (GDP)


  Measures the total value of all final goods and services produced within a country's borders in a given period of time
• Components of GDP


  • Consumption expenditure (C)
  • Investment expenditure (I)
  • Government expenditure (G)
  • Export earnings (X)
  • Import expenditure (M)
• Net exports


  The difference between the value of a country's exports and imports (X - M)
• Economic growth


  The increase in the level of national output, that is, the annual percentage change in real GDP over a given period of time

  
• Causes of economic growth

  • Factor endowments
  • The labour force
  • Improvements in education or other policy
  • Expansionary fiscal or monetary policy
  • Technological advances
  • Investment expenditure