ECONOMICS YEAR 11

CHAPTER 17 Output and Growth

Objectives
Students should be able to:


Define Gross Domestic Product (GDP) Describe simple measures & indicators of comparative living standards, such as GDP per head & Human Development Index (HDI)

Measuring Output


Economists need to measure the total or national output of a country and track how it s over time. In marcoeconomy the total value of output of goods & services produced NATIONAL OUTPUT Factors of productions are used to produce national output. The total amt of income earned in a macroeconomy is the NATIONAL INCOME

Circular flow of income

Land, Capital, Labour, Enterprise Rent, Wages, Interest, Dividend

Consumer goods

The value of Total output is measured by how much people pay for all the goods & services so
TOTAL OUTPUT = NATIONAL EXPENDITURE What people spend on goods & services provides an income to those firm that make and supply goods & services SO All 3 measures the Total Output of a macroeconomy National Output = National Income = National Expenditure In practice, the values do not add up as economic activity is very complex

GDP to GNP
   

It is the total value of output produced by all domestic firms in a country Figure are not conclusive as some incomes are from abroad Some resources are owned by foreigners. As such income will flow out to people overseas. Such differences between flows of income coming into a country and those paid overseas known as net property income from abroad. abroad. SO Gross National Product = GDP + Net property income from abroad

GNP is the total value of output from resources owned by people who lived in a country wherever these resources are located

GNP to NNP


 

All capital goods have depreciation or capital consumption (worn out capital) So NET NATIONAL PRODUCT (NNP) = GNP Depreciation NNP consists of all goods & services becoming available = National Income Do exercise 1 page 323 The amt of goods & services the national income can buy Real value of output or real national income

Using National Income figures



 

If govt knows how resources are used & what they are making. It is more able to try & change the allocation of resources. Ex: Changing from consumer to capital goods Allows comparison to be made of the standard of living in 1 year compare to the next. Ex If the amt of goods produced has increased, assume that people are better off Allow us to compare standard of livings with other countries. Dividing national income by population, gives an indication of how much each person on average earns

Economic Growth


Economic growth is the increase of per capita gross domestic product (GDP) or other measure of aggregate income, typically reported as the annual rate of change in real GDP. Economic growth is primarily driven by improvements in productivity, which involves producing more goods productivity, and services with the same inputs of labor, capital, energy and materials. Economists draw a distinction between short-term economic stabilization and longshortlongterm economic growth. The topic of economic growth is primarily concerned with the long run. The short-run shortvariation of economic growth is termed the business cycle. cycle.

The Big Picture Economic Growth



This is measured by the yearly change in Gross Domestic Product (GDP). It is usually expressed as a % change. Example Year 1 Tinseltown produces 1,000 worth of goods Year 2 Tinseltown produces 1,100 worth of goods Economic growth would be 10%

It (GDP) can be measured in 3 ways. Each is identical The total production (output) of all businesses The total incomes and profits in the country The total of all spending by individuals and businesses

GROWTH RATE VS BOND RATE

Measuring Growth


Measured by in National Income or GDP each year in a country However if prices due to inflation, there might be NO REAL GROWTH Economists term this a a rise in NOMINAL GDP (without growth in real GDP) see example Pg 325 To be better off, we should see the REAL GDP per capita real income per head (calculated by GDP of an economy by population size)

Per capita income weakness



Economic activity that does not involved in monetary income such as services provided within the family or for barter Distribution of an income is lopsided. A small wealthy group can increase per capital income above the rest of the population International comparisons can be distorted by distorted exchange rate same goods but twice as expensive in country with twice the per capital income. Does that make them equally rich

GDP per capital 2010

Data from http://topmauirestauran t.com/wpthreads/?tag=Countriesby-gdp-per-capita

Does Economic Growth make us Better Off?

 

Lopsided income Inequality If Population and goods are shared by more people, Real GDP per capita will causing negative growth Depending on which goods & services have increased in supply (building infrastructure in KL. Output would but people in other than KL will not view themselves as better off

WHAT CAUSES ECONOMIC GROWTH?

Anything which allows the country to produce more goods and services.  More business investment  Better productivity  Better machinery  Improved training  Better skills  New technology  New ideas  Increased efficiency

COSTS AND BENEFITS OF ECONOMIC GROWTH BENEFITS: BENEFITS: More income for society, Should create jobs, Could reduce the number of poor people, More goods produced and probably more choice for customers and businesses, Higher standard of living, Feel good factor in society

   

 

COSTS: COSTS:
    

Extra production could cause extra pollution Exhaustion of non renewable resources like oil, Only the rich may gain the benefits The poor stay poor and inequality increases, Greater stress on workers to produce more goods

Do exercise 2 Page 329

ACTION For each cause of economic growth. Try to think why it would allow businesses and the economy to produce a greater number of goods and services. B For each cost and benefit. Try to think through why it is in reality a cost or benefit C Are you in favour of economic growth? Explain your answer. SMART THINKING D What is human capital? How can an economy improve its stock of human capital? Why is it important?

Growth Cycles


Economic growth Real output (total amt of goods produced) increases over time. Result: National income will grow (incomes can buy more) However through time, there will be many ups & downs

The concept of Economic Cycles, is a theory that attempts to explain changes in economic activity that vary from a long term growth trend as observed in a developed market economy. economy. Factors considered in defining an economic cycle include growth of GDP, household income, employment rates, etc. Economic Cycles are divided into two main categories: booms and recessions. Booms are recessions. associated with a strong economy, while recessions are characterized by below-trend beloweconomic growth.

TIME

In periods of BOOM  High level of spending  Aggregate demand > National Output  Firms output using all available factors of production  Result Prices - Inflation steps in as firms cannot meet demand  BOOM associates with high level of spending/ low unemployment/ rising prices & profits high level of output

 

People then started to buy imported goods as demand greater than supply In turn, prices for production will making exports expensive. Overseas demand will then Rising prices at home will curb consumers expenditure. Aggregate demand BOOM cycles breaks Continuous falling total demand will result in RECESSION

        

Firms no longer will invest & spending falls Employment falls as demand falls Unemployment and National Income Possibility of deflation as Price Profits fall, Business failed BUT in prices will cause demand for exports Firms producing exports will output and employment Slowly income will Spending will also Then the economy is out of recession to recovery

The growth cycles will goes on and on powered by s in the level of demand in the economy
Do exercise 3 Page 331