Chapter 25: Economic growth

Economic Growth

The increase in the level of output by a nation, resulting in higher real incomes.

National Income

The value of all output or production in the economy, representing the income of the whole country's economy.

What are the Macroeconomic Objectives (6)

controlling inflation, economic growth, balance of current account, environmental protection, reducing unemployment, and redistribution of income.

GDP

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

Boom (Economic Cycle)

A phase where GDP grows rapidly, firms expand, more jobs are created, wages increase, and demand is high.

Downturn

A phase in the economic cycle where GDP grows at a slower rate, firms stop expanding, job creation slows, and demand decreases.

Recession

A period defined by two consecutive quarters of negative economic growth, characterized by high unemployment and low business confidence.

Recovery (Economic Cycle)

A phase where GDP starts to rise again, leading to high business and consumer confidence, and high employment.

Inflation's Effect on GDP

When prices increase, the reported growth rate may be misleading; real growth must account for inflation.

Economic Growth Measurement

Typically measured by GDP, which offers a comparative value between nations using a common currency like USD.

What are the Limitations of GDP as a Measure (7)

inflation, population changes, statistical errors, values of home-produced goods, the hidden economy, living standards, and external costs

Statistical Errors in GDP

Mistakes that can occur due to the vast amount of data collected from individuals and businesses for GDP calculations.

Inflation

A general increase in prices that can distort the perceived growth rate of GDP and create misleading economic data.

Population Changes

Demographic shifts that can affect GDP measurements, as growth may be distributed unevenly across different population segments.

Statistical Errors

Mistakes that arise during data collection for GDP calculations, potentially leading to inaccuracies.

Home-produced Goods

Goods that are produced but not sold on the market, which GDP does not account for, thus understating actual economic activity.

Hidden Economy

Economic activities that are not reported or recorded, leading to data gaps in GDP calculations.

Living Standards

GDP does not necessarily reflect the population's well-being or quality of life, as it ignores income distribution.

External Costs

Negative effects associated with production (like pollution) that are not included in GDP calculations, presenting an incomplete picture of economic