GDP and Economic Growth

Flashcards covering key concepts from the lecture on GDP and Economic Growth.

GDP (Gross Domestic Product)

The market value of all the final goods and services produced within a country in a given time period.

Consumption expenditure (C)

Expenditure by households on consumption goods and services.

Investment (I)

The purchase of new capital goods and additions to inventories.

Government expenditure (G)

Expenditure by all levels of government on goods and services.

Net exports of goods and services (NX)

The value of exports of goods and services minus the value of imports of goods and services.

Expenditure approach to measuring GDP

GDP = C + I + G + (X – M)

Real GDP

The value of the final goods and services produced in a given year expressed in the prices of the base year.

Nominal GDP

The value of the final goods and services produced in a given year expressed in the prices of that same year.

Goods and Services Omitted from GDP

Household production, underground economic activity, leisure time, and environmental quality.

Economic growth

A sustained expansion of production possibilities measured as the increase in real GDP over a given period.

Economic growth rate

The annual percentage change of real GDP.

Production Function

A relationship that shows the maximum quantity of real GDP that can be produced as the quantity of labour employed changes.

Full Employment

When the labour market is in equilibrium.

Labour productivity

The quantity of real GDP produced by one hour of labour.

What Labour Productivity Growth Depends On

Physical capital growth, human capital growth, and technological advances.

Physical capital growth

Increase in the stock of capital per worker.

Human capital growth

Accumulated skill and knowledge.

Technological advances

New technologies that increase output.

subsistence level, a population explosion eventually brings it back to the subsistence level. (Adam Smith, Thomas Robert Malthus, and David Ricardo)

The view that the growth of real GDP per person is temporary and that when it rises above the

Neoclassical Growth Theory (Robert Solow)

Technological change induces saving and investment that make capital per hour of labour grow.

New Growth Theory

The theory that our unlimited wants will lead us to ever greater productivity and perpetual economic growth.