25: Economic Growth

A set of vocabulary flashcards covering key terms and definitions from the notes on economic growth and macroeconomics.

GDP (Gross Domestic Product)

Market value of all final goods and services produced in a country in a period (usually a year); includes domestic production and exports, subtracts imports, and counts only final goods.

GDP per capita

GDP divided by the population size; a measure of average income or living standards per person.

Real GDP

GDP adjusted for inflation; shows growth in actual quantity of output rather than price changes.

National income

Value of all incomes in the economy (wages, profits, rents, etc.) added together; equals the value of all output or expenditure.

Exports

Goods and services sold to other countries; included in GDP as part of domestic production.

Imports

Goods and services bought from other countries; subtracted in GDP to avoid counting foreign production.

Macroeconomics

Study of the economy as a whole, including total income, total employment, inflation, and growth.

Microeconomics

Study of decision-making by individuals, households, and firms and the markets for specific goods and services.

Macroeconomic objectives

Aims of government such as reducing unemployment, redistribution of income, controlling inflation, promoting economic growth, protecting the environment, and balance of payments stability.

Economic growth

Increase in national income, output, or employment over time; often measured by rising GDP or GDP per capita.

Economic cycle

Fluctuations in economic activity over time, including four phases: boom, downturn, recession, and recovery.

Boom

Peak of the economic cycle when GDP grows rapidly, demand and employment rise, but prices may also increase.

Downturn

Phase after a boom where growth slows, demand may fall, and unemployment rises.

Recession

Period of temporary economic decline, typically defined as two consecutive quarters of falling GDP.

Depression

More severe and prolonged downturn with very high unemployment and very weak demand.

Recovery

Phase when GDP begins to rise again after a recession, with improving confidence and rising demand.

Productive potential

A country’s capacity to produce more goods and services; growth in productive potential shifts the production possibility curve outward.

PPC (Production Possibility Curve)

Diagram showing the maximum feasible combinations of two goods an economy can produce given resources and technology; growth shifts it outward.

External costs

Costs of production not reflected in market prices (e.g., environmental costs); GDP does not account for these.

Overheat

When growth is too fast, causing inflation and rising imports; policy may tighten with higher taxes or interest rates.

Unsustainable growth

Growth that cannot be sustained without causing environmental or resource problems.

Hidden economy

Unrecorded paid work and cash transactions; informal economy that leads to underreported GDP.

Budget deficit

Amount by which government spending exceeds government revenue.