Chapter 7: Economic Growth (Discovering Economics 8th ed.)

QA flashcards covering key concepts from the Economic Growth chapter, including GDP concepts, growth measurement, determinants, and caveats.

Define economic growth.

An increase in the real output of goods and services produced in a country over time (growth in real GDP).

What is nominal GDP?

GDP measured in current prices; valued at today’s prices; it can rise with prices even if output stays the same.

What is real GDP?

GDP measured in constant prices, removing price changes to show the actual quantity of output produced.

What is real GDP per capita?

Real GDP divided by the population; a measure of average living standards adjusted for inflation.

How is economic growth measured?

By the percentage change in real GDP from one period to the next.

What does an outward shift of the PPF signify?

Economic growth: expanded production possibilities given resources.

What does the APF model describe?

The relationship between growth, the quantity/quality of resources, and productivity; technology progress can shift the APF outward.

What two factors determine a typical 3% growth rate (as discussed for Australia)?

Growth in the labour force and growth in labour productivity (e.g., 2% labour-force growth and 1% productivity growth).

What are the three 'Ps' that determine long-run growth?

Population, Participation, Productivity.

How does rising population affect growth?

Increases demand and the size of the labour force; immigration can have an immediate impact because many migrants are of working age.

Why does immigration have an immediate impact on growth?

Immigrants are often of working age, expanding the labour supply and boosting output quickly.

What is the participation rate?

The share of people of working age who are in paid work or actively looking for work; Oct 2023: 66.8% (men 71.1%, women 62.7%).

What drives productivity?

Capital deepening, education/training (human capital), infrastructure, better management, and technological progress (multifactor productivity).

Why is GDP considered a good measure of growth by economists?

It is consistent over time, easy to understand, comparable across countries, and guides policy decisions.

Why doesn’t GDP capture well-being completely?

It omits non-market activities, quality improvements, income distribution, and negative externalities like pollution.

What are examples of non-market items GDP misses?

Housework, volunteering, and other unpaid services.

What are the five themes of the Measuring What Matters well-being indicators?

Health, Security, Prosperity, Cohesiveness, Sustainability.

What is the optimal rate of growth concept?

The rate where the marginal benefits of growth equal the marginal costs, typically at the intersection of growth-benefit and growth-cost curves.

What is the relationship between growth and living standards?

Productivity growth raises GDP per capita, improving living standards; without productivity gains, living standards may stagnate.

What are some costs of growth?

Potential increases in income inequality, environmental degradation, resource depletion, and other costs; sustainability concerns.

What is an example of a limitation of GDP as a welfare measure from the slides?

GDP does not account for distribution of income or well-being, and may ignore environmental costs.

What was Australia's real GDP growth rate between June 2022 and June 2023?

3.4%.

What is the formula for GDP percentage change (illustrated in the slides)?

GDP % change = (GDP in later period / GDP in earlier period) - 1.