Topic 1 - Economic Growth

What are models?

Collection of equations

• Diagrams are a visual representation of equations

• Expanding model = adding more variables/equations if needed

• Apply shocks to models to see what happens

3 skills developed:

1. Understand the equations

2. Connect equations with diagrams

3. ‘Intuition’ = explanation of how economy behaves based on equations & diagrams

3 skills developed:

1. Understand the equations (maths)

2. Connect equations with diagrams (graphs)

3. ‘Intuition’ = explanation of how economy behaves based on equations & diagrams (words)

What does economic growth refer to?

Refers to the growth in the standards of living

What is the difference between:

• GDP

• GNP

GDP = total value of all finished goods and services produced in a country in a given time period

• Anything produced domestically - could be by British or foreign firms

• More about where production takes place

GNP = total value of goods and services produced using the resources owned by a country’s residents + income from abroad

• measures production and income linked to a country's residents, wherever they are in the world

• GDP + income received from abroad - income paid abroad