The Concept and Measurment of Economic Growth

What is economic growth?

The increasing capacity of an economy to satisfy the material wants of its members.

How do we measure economic growth, define it and give equation

GDP - the total market value of all final goods and services produced within a country over a period of time, typically a year.
Equation - y2-y1/y2x100

Why is economic growth an important macroeconomic objective?

It increases the economy's productive capacity, expands its future opportunity set, and can allow households to achieve a higher material standard of living.

Why is the rate of change in GDP more important than the actual GDP figure?

Because the rate of change shows how quickly the economy's output and productive capacity are increasing.

What does an increase in real GDP indicate?

An increase in the actual output produced by the economy.

Why is real GDP used to measure economic growth rather than nominal GDP?

Real GDP removes the effects of price changes and inlfation, allowing changes in output to be measured more accurately. Nominial GDP includes price changes, so an increase in nominial GDP may reflect higher prices than an increase in production.

What is nominial GDP?

Nominial GDP measures the value of production using current prices and is affected by changes in prices and inflation

What is real GDP

Real GDP measures the value of production in constant prices, removing the effect of price changes/inflation

What is GDP per capita?

GDP devided by the population; it measures GDP per person

What happens if real GDP grows faster than population?

Real GDP per capita increases, so average material living standards are likely to improve.

What happens if population grows faster than real GDP?

Real GDP per capita decreases, meaning less output is available per person.