Economic Growth

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  • Economic Growth
    • Def: A positive change in the actual output of goods and services produced by FOP's in an economy o.p.t.
    • G.D.P is a way of measuring economic growth
      • G.D.P is a measure of the value of total output produced by the FOP's based within national boundaries o.p.t.
        • Limitations of GDP: accuracy, social costs, cost of living, hidden economies, exchange rate, wealth etc.
      • There are three different ways to measure GDP using the circular flow model:
        • 1. Output method - measure the value of all goods and services produced in an economy by firms in a year.
        • 2. Expenditure method - measure the amount of expenditure on goods and services, plus the value of those added to stocks.
        • 3. Income method - measure the return on all FOP's paid by firms to households.
      • Nominal GDP = measures the value of national output at current prices with no adjustment for the effects of inflation.
      • Real GDP = measures the volume of output. It is adjusted for inflation and measured at constant prices.
        • Calculating real GDP = nominal GDP x pr index in base yr (100)/pr index in current yr
    • A recession is two quarters of negative growth
    • Withdrawals from the circular flow model: savings, taxes, imports
    • Injections into the circular flow model: investment, government spending, exports

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