Summary
Summary ECS1601 - Chapter 12
- Course
- Institution
ECS1601 Summary - Chapter 12
[Show more]
Seller
Follow
mobo07
Content preview
CHAPTER 12ECONOMIC GROWTH AND BUSINESS CYCLES
Definition and measurement of economic growth:
Economic growth is usually measured by determining the annual growth in real production or income.
Production should be measured in real terms – means inflation should be eliminated. Figures should be
adjusted for population growth – on a per capita basis.
Positive economic growth only occurs when total real production or income is growing at a faster
rate than the population
Total real production is commonly represented by real gross domestic product (Real GDP) or real gross
national income (GNI).
Real GDP and real GNI means that the measurement is at constant prices.
Some problems associated with GDP:
Non-market production: difficult to measure or estimate the value of activities that are not sold in
the market. Eg: farmers consumption of their own produce.
Unrecorded activity: transactions or activities in the economy that are never recorded. Eg: the
informal sector.
Data revisions: original estimates are frequently adjusted as new and better data becomes
available.
Economic welfare: unwanted by products (such as pollution, congestion and noise) are not taken
into account. Economist argue that these bads should be subtracted from the value of goods
included in the GDP.
Calculating economic growth:
Four bases that are used:
Real GDP
Real GNI
Real GDP per capita
Real GNI per capita
Sources of economic growth:
These sources can be grouped together in two broad categories:
Supply factors
Demand factors
Supply factors:
Factors which cause an expansion in production capacity – potential output
Relate to the factors of production: natural resources, labour, capital and entrepreneurship.
Natural resources:
A country’s natural resources are fixed.
Labour:
The size of the labour force depends on factors such as the size and the age and gender
distribution of the population.
Capital:
Capital widening: when capital stock is increased to accommodate an increasing labour force.
Capital deepening: Occurs when the amount of capital per worker is increased. – when growth in
stock of capital > growth in the number of workers. (increase in the capital intensity of production)
The quality of capital is increased by applying new technology to capital equipment.
Entrepreneurship:
The entrepreneur is the driving force behind economic growth.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller mobo07. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for CA$6.34. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
80796 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now