Economic Growth

Economic Growth

It is…

The increase in the level output by a nation

• Government have to ensure that prices don’t rise too quickly and imports aren’t greater than exports

What is Economic Growth

• National income will rise, which is the value of all incomes in the economy added together. 

• National Income=value of all output=value of all spending

Measuring Economic Growth

• Most common measure of national income is gross domestic product (GDP)

  • GDP is the market value (total worth) of all final goods and services 

• GDP is used to measure economic growth worldwide so comparisons are available

Limitations of GDP as a measure of growth

Inflation

• Price increases can mean growth rates are misleading

• This problem can be solved by using real GDP to measure growth (adjusting GDP for inflation)

Population changes

• must be taken into account when analyzing growth patterns

  • An increase in population will offset the growth in GDP and make it difficult to calculate

• To solve problem you have to make changes in GDP per capita calculation

Statistical Errors

• The government collects millions of documents from firms, individuals, and other organizations. 

• Errors are made because information has been entered incorrectly or left out. Causing the true value of GDP unknown 

Value of Home Produced goods

• Some goods and services are not traded so economic activity isn’t recorded

  • I.e people growing their own produce

• If activated aren’t recorded value of national income is not accurate

Hidden Economy

• Sometimes paid work is not recorded

  • Do a variety of jobs for cash and not…