EKN 120
Chapter 15: Macroeconomic objectives
Economic Growth
Economic Growth: Increase in real GDP
It is measured as percentage rate of increase in real GDP:
Economic Growth = GDPt-GDPt-1/GDPt-1 x 100
Increase in real GDP per capita
Growth as a goal
Economic growth is one of the main macroeconomic objectives of a country
Arithmetic of growth
o Rule of 70: is used to determine the number of years it takes for a variable to double
by dividing the number 70 by the variable’s growth rate
o Approximate number of years required to double real GDP = 70/annual percentage
rate of growth
Economic Growth in SA
Main Sources of Growth
Increases in inputs
o Natural resources
o Human and physical capital
o Population/labour
, Increases in resource productivity
o Improvement in technology
o Education and training
Effects of Growth in SA
o Improved products and services
o Added Leisure
o Other impacts
Modern Economic growth
Uneven distribution of growth
Catching up is possible
Is growth desirable and sustainable
o The antigrowth view
o In defence of economic growth
The business cycles
Phases of the business cycle
The business cycle model shows how a nation’s real GDP fluctuates over time around the
growth trend (potential output)
Twin problems of the business cycle are: unemployment and inflation
Over the long run, the business cycle shows a steady increase in potential output in a
growing economy
Recession occurs when there are 2 or more consecutive quarters of negative economic
growth
This means GDP contracts during a recession
Unemployment is high during a recession. Productivity tends to fall in the early stages of a
recession, then rises again as weaker firms close
Living standards of people decline.
Loss of jobs is known to have negative impact on the stability of families, and individuals’
health and well-being
Chapter 15: Macroeconomic objectives
Economic Growth
Economic Growth: Increase in real GDP
It is measured as percentage rate of increase in real GDP:
Economic Growth = GDPt-GDPt-1/GDPt-1 x 100
Increase in real GDP per capita
Growth as a goal
Economic growth is one of the main macroeconomic objectives of a country
Arithmetic of growth
o Rule of 70: is used to determine the number of years it takes for a variable to double
by dividing the number 70 by the variable’s growth rate
o Approximate number of years required to double real GDP = 70/annual percentage
rate of growth
Economic Growth in SA
Main Sources of Growth
Increases in inputs
o Natural resources
o Human and physical capital
o Population/labour
, Increases in resource productivity
o Improvement in technology
o Education and training
Effects of Growth in SA
o Improved products and services
o Added Leisure
o Other impacts
Modern Economic growth
Uneven distribution of growth
Catching up is possible
Is growth desirable and sustainable
o The antigrowth view
o In defence of economic growth
The business cycles
Phases of the business cycle
The business cycle model shows how a nation’s real GDP fluctuates over time around the
growth trend (potential output)
Twin problems of the business cycle are: unemployment and inflation
Over the long run, the business cycle shows a steady increase in potential output in a
growing economy
Recession occurs when there are 2 or more consecutive quarters of negative economic
growth
This means GDP contracts during a recession
Unemployment is high during a recession. Productivity tends to fall in the early stages of a
recession, then rises again as weaker firms close
Living standards of people decline.
Loss of jobs is known to have negative impact on the stability of families, and individuals’
health and well-being
