Summary
Lecture 6 summary
- Course
- EKN 320
- Institution
- University Of Pretoria (UP)
Summary of 7 pages for the course EKN 320 at UP (Lecture 6 summary)
[Show more]
Seller
FollowContent preview
Lecture 6Economic growth
Economic growth:
Economic growth → continuous expansion in the productive capacity of a country,
compared between two periods
Economic development → process and polices by which a nation improves the
economic, political, and social well-being of its people.
- Implies growth and change in the standards of living/well-being experienced by
all citizens in a country (change in distribution of income and access to resources
etc.)
Growth performance → measured in terms of growth in real GDP or real GDP per capita
- Nominal GDP (current-price GDP) cannot be used → changes in nominal GDP
reflect changes in prices (inflation) as well as changes in the volume of economic
activity
o Nominal GDP → has to be adjusted to obtain real GDP (GDP at constant
prices) before economic growth can be measured
Calculating rates of change
Annual growth rate → calculated over a period of less than a year
- Indicates what will happen if that pace were to be sustained for a full 12 months.
Growth rate between 2 periods (1 year or less):
𝐼𝑡
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑏𝑒𝑡𝑤𝑒𝑒𝑛 𝑡 − 1 𝑎𝑛𝑑 𝑡 = [( ) − 1] × 100
𝐼𝑡−1
- Where 𝐼 = 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒, 𝑡 − 1 = 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑝𝑒𝑟𝑖𝑜𝑑 and 𝑡 = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑒𝑟𝑖𝑜𝑑
Growth rate between 2 periods (more than 1 year):
1
𝐼𝑡 𝑘
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑏𝑒𝑡𝑤𝑒𝑒𝑛 𝑡 𝑎𝑛𝑑 𝑡 − 𝑘 = [( ) − 1] × 100
𝐼𝑡−𝑘
- Where 𝐼 = 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒, 𝑡 − 𝑘 = 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑝𝑒𝑟𝑖𝑜𝑑 and 𝑡 = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑒𝑟𝑖𝑜𝑑
- 𝑘 = number of years/number of intervals between the observations over which
the rate is calculated
NOTE! Always use constant prices
Always compare the same quarter of different years
Negative growth rate → indicates the economy has contracted
Notes can only be purchased through the following details:
gorgataylor@gmail.com or 0829369077 1
, Choosing the base for calculating economic growth
GDP → measures the total value of economic activity within the geographic boundaries
of a country
- Better measure if interested in production volume and growth of the country
- Excludes imports → can underestimate or overestimate growth
o Example: price of gold increases → value of gold production is adjusted for
the price increase when real GDP is calculated.
▪ If gold price increases but volume of gold production does not
change → nominal GDP increases but real GDP is unchanged
▪ If import prices are constant → higher nominal value of exports will
enable the country to afford a greater volume of imports than
before = increase in volume of goods available for domestic
consumption
▪ If export prices rise rapidly in comparison to import prices → growth is
overestimated
▪ If import prices rise rapidly in comparison to export prices → growth is
underestimated
GNI → measures the total income of the residents of a country
- Better measure if interested in economic welfare of residents → impact growth
has had on the residents of a country
- May gives better indication of economic growth
- Accounts for terms of trade fluctuations
o Terms of trade (tot) = ratio between export and import prices
▪ Tot improve = export price increase faster than import prices (and
vice versa)
- GDP excludes Z, so if Pz increases relative to Px → not captured and growth is
overestimated
GDP vs GNI → difference = net primary income to RoW and GNI has adjustments for ToT
GDP vs capita and GNI per capita → population data is erratic and it represents an
average, not how it is distributed
Notes can only be purchased through the following details:
gorgataylor@gmail.com or 0829369077 2
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 EFT, 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 this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller georgiataylor. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R50,00. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
67474 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now