Economics

• Gross Domestic Product (GDP) measures the value of goods and services produced by a nation's residents during a specific period.
• Economic growth refers to an increase in real GDP over time, indicating an expansion in production capacity and living standards.
• The economy is the sum total of all economic activities that take place within a country.
• Economic growth


  Increase in the output or productive capacity of an economy over time (usually a year)
• Types of economic growth


  • Actual economic growth
  • Potential economic growth
• Actual economic growth


  Output of the economy increases in the short run
• Potential economic growth


  Economy's productive potential increases in the long run, can be achieved by rise in quantity and/or quality of factors of production
• Economic growth measurement


  Yearly change in Gross Domestic Product (GDP) - Value of all goods and services produced within a country in a year, usually expressed as a % change
• Ways to measure GDP


  • Output/Product Approach
  • Income Approach
  • Expenditure Approach
• Nominal GDP


  GDP whose value is affected by inflation
• Real GDP


  GDP which is deflated (i.e. Inflation removed)
• Aggregate Demand (AD)


  Total demand for an economy's products, consists of Consumption by households (C), Investments by firms (I), Government expenditure (G) and Exports minus Imports (X-M)
• Aggregate Supply (AS)


  Total output of producers at a given average price level in an economy
• AS curve


  • Perfectly elastic if economy has significant unemployed resources, more can be produced without rise in costs
  • More inelastic as economy approaches full employment, pushing up costs and price level
• Causes of economic growth


  • Discovery of more natural resources
  • More investment in capital
  • Better productivity
  • Technical progress
  • Increase in amount and quality of human resources
  • Improved training
  • Better skills
  • New technology
  • New ideas
  • Increased efficiency
• Benefits of economic growth


  • More income for society
  • Should create jobs
  • Could reduce the number of poor people
  • More goods produced and probably more choice for customers and businesses
  • Higher standard of living
• Costs of economic growth


  • Extra production could cause extra pollution
  • Exhaustion of non renewable resources like oil
  • Only the rich may gain the benefits, the poor stay poor and inequality increases
  • Greater stress on workers to produce more goods
  • Species become extinct
  • Break-down of cultural identity
• Business cycle


  Recurring pattern of short term cyclical fluctuations (ups and downs) in economic activity and national output (real GDP) in an economy over a long period of time, sometimes many years
• Stages of the business cycle


  • Peak (Boom)
  • Recession (Downturn)
  • Trough (Slump)
• Peak (Boom)


  Aggregate demand, sales and profits peak, rapid inflation as AD exceeds AS, low unemployment and higher wages, government may raise interest rates to control inflation
• Recession (Downturn)


  Two consecutive quarters of negative GDP growth, aggregate demand (AD) begins to fall, firms' sales and profits decline and investment fall, unemployment rises as workers are laid off, businesses compete to survive, prices fall (lower inflation rates) or even deflation
• Trough (Slump)


  Deep prolonged recession, economic activity, sales and profit continue to fall or remain low, many firms are forced to close down, unemployment is high and wages may be cut for those still in work, many people experience fall living standards, government may increase public spending, cut taxes and reduce interest rates to encourage consumer borrowing and spending (as a solution)
• Income redistribution


  Government taxes the rich more than the poor and spends the money on benefits and public services to benefit the poor
• Balance of payments


  Record of a country's economic transactions with other countries, government wants exports to equal imports in the long run
• Balance of payments positions


  • Deficit (imports expenditure exceeds exports revenue)
  • Surplus (exports revenue exceeds imports expenditure)
• GDP


  Total value of output of goods and services produced within a country, without regards to the nationalities involved
• GNP


  Total value of all outputs produced in a year by only nationals of a country both at home and abroad
• Nominal GDP


  GDP valued in terms of the prices operative at that time, not adjusted for inflation
• Real GDP


  Nominal GDP which has been adjusted for inflation
• Economic development


  Elimination or reduction in poverty, unemployment and income inequality in a growing economy, qualitative rather than just quantitative growth
• Measures of living standards


  • Real GDP per capita
  • Human Development Index (HDI)
  • Human Poverty Index (HPI)
  • Happy Life Expectancy Index (HLEI)
• Real GDP per capita


  Real GDP divided by population, suggests living standards have risen but may not necessarily indicate the real situation
• HDI


  Wider measure than real GDP per capita, considers GDP per head, life expectancy at birth, and education
• HPI


  Index based on deprivation, measures percentage of population not expected to survive till age 40, adult literacy rate, percentage without access to safe water and health care, and percentage of underweight children
• HLEI


  Measures the degree to which people live long and happy lives, found by multiplying life expectancy at birth with average life expectancy
• Characteristics of developing economies

  • Low incomes per head
  • Low levels of saving due to low income
  • Low productivity (low output per worker)
  • Low life expectancy and high family mortality rate
  • High rates of population growth
  • Low levels of education and health care
  • Low levels of capital goods and poor infrastructure
  • Over-dependence on agriculture to provide jobs and incomes
  • Poor housing and sanitation
  • Dominance of international trade by developed nations
  • Exports are largely raw and unprocessed agricultural output
• Millennium Development Goals


  • Eradicate extreme poverty and hunger
  • Achieve universal primary education
  • Promote gender equality and empower women
  • Reduce child mortality
  • Improve maternal health
  • Combat HIV/AIDS, malaria and other diseases
  • Ensure environmental sustainability
  • Develop a global partnership for development
• Sustainable development


  Development that meets the needs of the present without compromising the ability of future generations to meet their own needs
• Sustainable Development Goals


  • End poverty in all its forms everywhere
  • End hunger, achieve food security and improved nutrition and promote sustainable agriculture
  • Ensure healthy lives and promote well-being for all ages
  • Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
  • Achieve gender equality and empower women and girls
  • Ensure availability and sustainable management of water and sanitation for all
  • Ensure access to affordable, reliable, sustainable and modern energy for all
  • Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
  • Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation
  • Reduce inequality within and among countries
  • Make cities and human settlements inclusive, safe, resilient and sustainable
  • Ensure sustainable consumption and production patterns
  • Take urgent action to combat climate change and its impacts
  • Conserve and sustainably use the oceans
  • Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation, and halt biodiversity loss
  • Promote peaceful and inclusive societies for sustainable development, provide access to justice for all, and build effective, accountable and inclusive institutions at all levels
  • Strengthen the means of implementation and revitalize the global partnership for sustainable development
• Vicious cycle of poverty

  Low productivity -> Low investment -> Low savings -> Low income