Growth

• Real GDP


  Real GDP is nominal GDP adjusted for inflation/changes in the price level. Measured in constant dollar terms. An increase in real GDP means NZ is producing more goods and services and therefore growth has occurred, indicates national output volume
• Real GDP vs Nominal GDP

  Real GDP is a better measure of growth than nominal GDP because increases in nominal GDP may be due to price increases (inflation) rather than actual increases in physical output (goods and services)

  
  

  Real GDP shows there is an actual increase in amount of goods and services produced. Nominal GDP may just be an increase in the value (inflation) of goods and services
• Limitations of Real GDP per capita - The distribution of goods

  The distribution of goods:

  
  

  The calculation of Real GDP per person merely tells us the value of production if we spread it equally across the population, we know this does not occur
• Limitations of Real GDP per capita - Rates of unemployment

  Rates of unemployment:

  Even if the economy is producing larger large quantities of goods and services but there is a significant proportion of the workforce unemployed then standard of living will vary greatly
• Limitations of Real GDP per capita - The types of goods being produced

  The types of goods being produced:

  If the country is producing large amounts of defence goods than the people don't have access to large amounts of goods and services
• Limitations of Real GDP per capita -The level of pollution in the economy


  The level of pollution in the economy:

  If a large proportion of the GDP is being used to clean up pollution then the economy is no better off
• Exclusion from GDP - still the most accurate measure 


  Criminal Activity:

  For example income from dealing drugs is not declared so is not included in GDP
• Exclusion from GDP - still the most accurate measure 



  Unpaid work such as housework and DIY jobs
• Exclusion from GDP - still the most accurate measure 



  Jobs done for cash and not declared (under the counter payments)
• Exclusion from GDP - still the most accurate measure 



  People declaring work for other work:

  For example electrician doing a personal favour for a builder in return for him building a fence
• Advantages of Real GDP

  Easy to Calculate

  Can be used to compare from year to year

  Can be used to compare with other economies when used as Real GDp per capita
• Calculate the Real GDP

  Real GDP (in base year dollars) = Nominal GDP/Current Price Index x base year price index (usually 1000)
• Real GDP per Capita

  Shows the average amount of income per person in the economy
• Real GDP per Capita Formula

  Formula: Real GDP/Population
• Real GDP per Capita accuracy

  Real GDP per Capita is a more accurate statistic as the GDP could have been due to an increase in population so the average person is actually receiving less. The disadvantages of using GDP is that it does not show how it is distributed. For example one group on society may get most of the wealth while a large group got very little (inequitable). It also does not include all things produced in the economy.
• Nominal GDPCalculation

  Quantity of goods and services x Price of goods and services
• Real GDP Calculation

  Real GDP = Nominal GDP/Price index x 1000 (constant dollar terms)
• Growth as increased net social welfare

  Net social welfare = Economic welfare + Non-Economic welfare
• Net social welfare - Economic welfare 


  Economic welfare indicators:

  Real GDP, cars, houses, cellphones
• Net social welfare - Non Economic welfare

  Non-Economic welfare indicators:

  Environmental factors, pollution, leisure time, life-expectancy, infant mortality rates
• HDI

  Human Development Index
• HDI - HUMAN DEVELOPMENT INDEX 


  The HDI index is one way of attempting to utilise the net social welfare definition of growth
• HDI taking into account THREE seperate ideas

  Long and healthy index (life expectancy index)

  Education and Knowledge (adult literacy rate and gross enrolment ratio = education index)

  A decent standard of living (GDP index)
• HDI Index

  HDI Index = 1/3 life expectancy rate + 1/3 education index + 1/3 GDP index
• Advantages of Real GDP

  Easy to calculate, year to year comparisons, Real GDP per capita, other economies comparison
• Disadvantages of Real GDP

  Does not show distribution (inequitable), Does not include all things produced in the economy, Does not asses happiness of people.etc
• Advantages of Productive Capacity

  Shows which countries have future growth, measures the total output of resources available
• Disadvantages of Productive Capacity 


  Technology is constantly changing which impacts on the productivity of resources, never constant due to changing resources, Doesn't show what combination of production
• Advantages of net social welfare

  Includes both Economic and Non-Economic factors welfare factors, Determines countries quality of life
• Disadvantages of net social welfare

  Subjective and hard to measure
• Determinants of AD

  C + I + G + (X - M)
• C - Household Consumption Expenditure

  Income Tax

  Interest rates (OCR)

  Income

  Unemployment rate

  Inflation

  Consumer Confidence

  Migration rate

  Transfer Payments
• I - Investment Spending

  Exchange rate

  Interest rate

  Business confidence

  Boom/Recession
• G - Government Consumption Expenditure

  Budget Deficit

  Operating Deficit

  Increase Infrastructure
• X - M: Net Exports

  Exchange rate

  OCR - Interest - Exchange

  Comparative inflation rates

  Recession/Boom
• AS Determinants

  Cost of production

  Cost of raw imported materials

  Technology

  Productivity
• Causes of Growth

  Increases or improvements in the following factors of production cause an increase in economic growth

  Natural resources

  Human resources

  Capital resources

  Entrepreneurship
• Causes of Growth - Natural resources

  If NZ discovered New or more natural resources (e.g oil) that can be used in production then this will increase our productive capacity - growth
• Causes of Growth - Human resources 


  Quantity of Labour

  If NZ has more labour resources then it has a greater ability to produce so its productive capacity will increase leading to higher economic growth - an increase in the quantity of labour shifts the PPF curve outwards to the right
• Causes of Growth - Human resources

  Ways NZ could increase its quantity of labour:

  Migration

  Natural population increase

  Increase in labour force participation (percentage of working age people who are working)