Economic Growth & GDP – Vocabulary Flashcards

A comprehensive set of vocabulary flashcards covering key terms, concepts, benefits, costs and measurement issues related to economic growth and GDP.

Economic Growth

the increasing capacity of an economy to satisfy the needs and wants of the population

Gross Domestic Product (GDP)

The market value of all final goods and services produced within a country in a year.

Nominal GDP

GDP measured in current-year prices, unadjusted for inflation.

Real GDP

GDP measured in constant prices, removing the effects of inflation to isolate changes in output.

Real GDP per Capita

Real GDP divided by the population; a measure of average material living standards.

Market Value

The dollar price at which a good or service is sold; used to aggregate diverse products in GDP.

Final Goods and Services

Products purchased by their ultimate users; counted in GDP to avoid double counting.

Intermediate Goods

goods and sevices used as inputs in the production of other products

Circular Flow of Income

a macroeconomic model that descibes the flows of resources, goods and services, income and expenditure between parts of the economy

Spending Approach to GDP

Measurement that sums Consumption, Investment, Government Purchases and Net Exports (C+I+G+X–M).

Consumption (C)

Household spending on goods and services, including rent.

Investment (I)

Business spending on capital goods and inventories plus new residential construction.

Government expenditure (G)

Government expenditure on goods and services; excludes transfer payments.

Net Exports (X–M)

Value of exports minus imports; shows the net foreign demand for domestic output.

Value Added

A firm’s output value minus the value of intermediate inputs; used in the output approach to GDP.

Production Possibility Frontier (PPF)

Curve showing the maximum output combinations an economy can produce with given resources.

Aggregate Production Function (APF)

Relationship between total inputs (capital, labour, technology) and total output (GDP).

Aggregate Demand–Aggregate Supply (ADAS) Model

Macro model depicting total demand, total supply and potential output in an economy.

Physical Capital

Man-made productive assets such as machinery, buildings and equipment.

Human Capital

Skills, knowledge and health embodied in the labour force that raise productivity.

Technology (in APF)

Knowledge and techniques that improve the efficiency of converting inputs into output.

Law of Diminishing Returns

Principle that additional units of a variable input eventually yield smaller increases in output.

Capital Deepening

Increasing capital per worker, making production more capital-intensive and raising productivity.

Capital Widening

Expanding capital stock in proportion to labour, keeping the capital-to-labour ratio unchanged.

Capital Accumulation

Growth of the capital stock through investment, supporting higher future output.

Shadow Economy

Unreported or illegal economic activity not captured in official GDP statistics.

Non-Market Activities

Household production and unpaid work excluded from GDP measurements.

Environmental Damage (GDP Limitation)

Negative externalities ignored by GDP because natural resources are valued only when sold.

Leisure (GDP Limitation)

Time off work whose value is not captured in GDP, despite affecting well-being.

Income Distribution

How GDP is shared among households; ignored by GDP’s overall average figure.

Inflation

Sustained rise in the general price level, measured by the Consumer Price Index (CPI).

Consumer Price Index (CPI)

Price index tracking the cost of a fixed basket of consumer goods; used to deflate GDP.

Base Year

Reference year whose prices are used to calculate real GDP in other years.

Deflating GDP

Adjusting nominal GDP using a price index to obtain real GDP.

Rate of Economic Growth

Percentage change in real GDP over a given period.

Fiscal Policy

Government use of spending and taxation to influence aggregate demand and economic growth.

Monetary Policy

Central-bank actions on interest rates and money supply to affect spending and investment.

Multiplier Effect

Process by which an initial injection of spending leads to multiple rounds of additional spending.

Material Living Standards

Level of economic well-being based on access to goods, services and income.

Benefits of Economic Growth

Higher incomes, better goods, more jobs, fiscal dividend and greater consumer choice.

Costs of Economic Growth

Inflation risk, environmental degradation, social welfare issues, inequality and structural unemployment.

Structural Unemployment

Joblessness resulting from industrial reorganisation or mismatch of skills, often during growth.

Potential Output

The level of GDP the economy can produce when resources are fully employed; shown by LRAS or the PPF.

Productivity

Output produced per unit of input, often measured as output per labour hour.

Capital-to-Labour Ratio

Amount of capital available per worker; higher ratios typically raise productivity.

Public Investment

Government spending on infrastructure (roads, schools, hospitals) forming social overhead capital.

Private Investment

Business spending on buildings, machinery and equipment to increase productive capacity.

Natural Resources

Land, minerals and raw materials that can be exploited for economic production.

GDP per Quarter

Short-term measure of output; four quarterly figures are summed to obtain annual GDP.

Economic Welfare

Overall well-being combining material living standards and non-material aspects like health and freedom.