Macroeconomic Objectives - Economic Growth

Understand economic growth! Learn about GDP, cycles & impact.

What is the study of large economic systems such as those of a whole country or area of the world called? Macroeconomics Microeconomics Global economics Systemic economics What is the study of small economic systems that are part of national or international systems called? Small-scale economics Macroeconomics Microeconomics Individualised economics Economic Systems: Sort the following into groups, based on whether they would be looked at as part of the study of large or small economics systems. Large economic systems (4) Total income or spending in a country Employment The general price level Balance of payments Small economic systems (3) Individual spending decisions How firms allocate resources Analysis of specific markets Macroeconomic Objectives OverviewThe government will introduce policies designed to help grow incomes, output and employment in the economy. At the same time the government must ensure that prices do not grow too quickly and that imports are not significantly greater than exports. Also governments are under pressure to introduce measures that protect the environment and redistribute income in the economy. What is the definition of economic growth? The increase in the number of people paying tax to the government The amount of time a country's economic cycle is in a period of 'boom' The increase in the level of output by a nation The wealth gap in the country getting bigger What is the definition of national income? The value of income, output or expenditure over a period of time The value of economic growth over a period of time The increase in employment and taxation over a period of time The difference between government spending and taxation over a period of time True or False? Mix and match the true and false chains of logic: 1) Economic growth is important because.... ...if the economy produces more then businesses are more profitable and share prices rise. This makes it easier for businesses to raise more capital and employ more workers. As more jobs are created, incomes rise. This means consumers have more money to spend on goods and services, which leads to a greater increase in economic growth 2) Economic growth is important because.... ...if the economy produces more then businesses are more profitable and share prices fall. This makes it harder for businesses to raise more capital and employ more workers. As more jobs are lost, incomes rise. This means consumers have more money to spend on goods and services, which leads to a greater decrease in economic growth What is gross domestic product? The difference between visible imports and exports The result of a contractionary fiscal policy The supply of money in a market The market value of all final goods and services produced in a period GDP only measures final production, it does not include the manufacture of parts used to make a final product. True or false? True False Which of the following are included when calculating GDP. Imports or exports? Imports Exports Limitation of using GDP as a measure of growth 1) InflationPrice increases can mean that growth rates are misleading e.g. if the economy grows by 2.6% and prices also rise by 2.6% then the economy has not grown. This problem can be overcome by adjusting GDP for inflation, e.g. if inflation is 2.3% and money GDP grows by 4.4% then real GDP has grown by 2.1% (that is, 4.4-2.3).2) Population changesIf GDP grows by 2.8% and the population rises then the increase in population will offset the growth in GDP. To overcome this problem changes in GDP per head or per capita can be calculated. GDP per capita can be calculated by dividing GDP by the size of the population.3) Statistical errorsGathering national income data is a huge task and unfortunately errors are made because information has been entered inaccurately or left out, therefore the true value of GDP is never really known.4) The value of home produced goodsSome goods and services are not traded and therefore economic activity is not recorded, e.g. people growing their own food in their gardens, building work done by DIY enthusiasts.5) The hidden economyFor example a friend may drive a family member to an airport for £25 cash, this £25 will not be recorded and becomes part of the ‘black’ or informal economy.6) GDP and living standardsJust because GDP rises it does not mean that living standards have also risen, other factors need to be taken into account, such as: the amount of leisure time people have, the way extra income is shared between the population, whether growth has resulted in pollution or the quality of goods and services.7) External costsGDP does not take into account external costs such as environmental costs. For example, it does not measure the costs of disposal of damaging materials and how these costs impact society, e.g. spent nuclear fuel rods, plastic bags etc. The Economic Cycle Click on the pulsing blue dots, then copy and paste in one of the following labels (without the comma Recession Recovery, Boom, Downturn. Boom Downturn Recession Recovery The impact of the economic cycle on growth, employment and inflation Sort the following impacts into their correct group. Boom (5) Peak of the economic cycle, where GDP is growing fastest Existing firms will be expanding and new firms will be entering the market Demand will be rising and jobs will be created Wages and profits will be rising However prices will also be rising Downturn (5) Follows a boom The economy is still growing but at a slower rate, demand for goods and services will stop increasing or begin to fall Unemployment will start to rise and wage increases will slow down Many firms will stop expanding, profits may fall and some firms will leave the market Prices will rise more slowly Recession (5) At the bottom of the economic cycle, GDP may be flat If GDP starts to fall the bottom of the cycle may be referred to as a slump or depression, such a period is often associated with widespread poverty Demand for many goods and services will start to fall, particularly non-essentials Unemployment rises sharply, business confidence is low, bankruptcies rise and prices become flat or fall A less severe version of depression is a recession Recovery (3) When GDP starts to rise again, there is a recovery or upswing in the economy Businesses and consumers regain confidence and economic activity is on the increase Demand starts to rise, unemployment begins to fall and prices start to rise again The impact of economic growth 1) EmploymentEconomic growth is caused by businesses generating more output. As businesses produce more they need more workers. As people get jobs they have more money to spend.2) Standards of livingAs GDP increases on average people have more money to spend on better goods and services. People may work less, retire earlier and live longer.3) PovertyRapid economic growth in some countries has helped to reduce poverty. Some of the new jobs created will be take by the poor. A growing economy means the government can collect more tax and spend it on provisions to help the poor.4) Productive potentialEconomic growth can raise the productive potential of a country, this means that a country can produce more goods and services. This can be shown using production possibility curves (PPCs).5) InflationIf the economy grows too fast it may overheat, this can cause inflation, which is bad for the economy.6) The environmentEnvironmental groups believe that the benefits of growth are lower than the costs of generating that growth. For example as people get richer, they buy more cars and travel more by plane, both modes of transport are highly polluting. Economic growth means that future generations will have fewer non-renewable resources, this is referred to as unsustainable growth. Economic Growth Word Search! To mark a word click its first letter then click its last.Words placed forward, down and diagonally. ENVIRONMENT EMPLOYMENT STANDARDS RECESSION INFLATION DOMESTIC DOWNTURN ECONOMIC UPSWING POVERTY PRODUCT GROWTH INCOME GROSS BOOM