16A: measuring GDP and economic growth

Economic Growth

The increase in a country's productive capacity, typically measured by GDP growth rate between 3-4%.

Full Employment/Low Unemployment

A state where the unemployment rate is between 4-5%.

Price Stability/Low Inflation

Maintaining an inflation rate (measured by CPI) between 2-3%.

External Stability

Achieved through a stable exchange rate, low current account deficit, and low foreign debt.

GDP (Gross Domestic Product)

The total market value of all final goods and services produced within a country, avoiding double counting and including only goods produced within the country.

Economic Growth Rate Calculation

Calculated as ((Real GDP in current year - Real GDP in previous year) / Real GDP in previous year) * 100.

GDP Computation Methods

Includes the production method, income approach, and expenditure method, where GDP equals aggregate expenditure and aggregate income.

Aggregate Expenditure

The total money spent on all final goods and services by all sectors in the economy, represented as C+I+G+EX-IM in the circular flow model.

expenditure method

1. GDP is the sum of the total money spent on all goods and services by all sectors in the economy during a given time period. 

2. GDP = aggregate expenditure (AE)

income approach

1. GDP is the sum of the amount received/income earned by the owners of the factors of production (the households), who help in producing goods and services (plus net indirect tax). 

2. The income earned includes wages and salaries, rental income etc. therefore, GDP is the same thing as aggregate income (Y).

market value

is the price at which each item is traded in the market

final goods and services

those that are bought by their final user during a specified period of time and are not used as a component to produce other goods or services

planned investment

intended investment included purchase of new capital and expenditure on new residential houses by households.

unplanned changes in inventories

unintended investment includes changes in inventories of the firm