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Description
Flashcards by ALEXIS LEI YEE FAYE 3T, updated more than 1 year ago
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Created by ALEXIS LEI YEE FAYE 3T
over 6 years ago
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| Question | Answer |
| Define the term Gross Domestic Product (GDP) | measures the monetary value of goods and services produced within a country for a given period of time, usually a year. |
| Components of GDP | Consumption Expenditure (C): refers to total spending on goods and services by individuals and households in an economy Investment Expenditure (I): refers to capital expenditure of firms which is used to further production and expand the economy's productive capacity Government Expenditure (G): refers to total consumption and investment expenditure of the government Net Exports (X-M): refers to the difference between the value of a country's exports and imports |
| GDP formula | GDP = C + I + G + (X-M) = Aggregate Demand |
| Aggregate Demand & Aggregate Supply vs GDP | According to economic theory, Aggregate Demand (AD) takes GDP and shows how it relates to price levels. Quantitatively, Aggregate Demand and GDP are exactly the same Aggregate Demand (as well as Aggregate Supply) represent the total/aggregate demand and supply of goods and services that are available at all possible price points within an economy. The intersection of AD and AS shows the equilibrium price point and the real GDP of the economy (which is national income, Y) Any shift in AD or AS has an impact on the real GDP and the price level |
| Define Economic Growth | Economic growth is the increase in the level of national output, that is the annual percentage of change in GDP. Hence, in theory, any increase in the components of GDP (C, I, G, or [X-M]) can cause economic growth. An increase in the quality and/or quantity of the factors of production (land, capital, labor and enterprise) can also create economic growth |
| Causes of Economic Growth | Factors endowment: quality and quantity of a country's factors of production, such as resources, land etc Labour force: Size, skills and mobility of the economy's workforce has an impact on the country's economic growth Labour productivity: the amount of goods and services that workers produce in a given tome period. It is often referred to as output per worker, expressed as a monetary value (GDP divided by the country's labour force) Investment expenditure: Investment and spending on capital resources such as use of computers in productions, equipment etc |
| Advantages of Economic Growth | Improved standards of living: growth tends to lead to higher standards of living for the average person Employment: growth tends to lead to higher levels of employment in the country Tax revenues: growth is associated with higher levels of spending in the economy. This generates more tax revenues for the government. |
| Disadvantages of Economic Growth | Environmental consequences: high rates of economic growth can create negative externalities such as pollution (China), congestion (Singapore), climate change and land erosion. Risk of Inflation: if economy grows due to excessive demand in the economy, there is a danger of demand-pull inflation - negative consequences on the economy (Notice that the General Price level increases when AD increases, on the AD-AS model) Inequalities in income and wealth: creates disparities in the distribution of income and wealth - the rich gets richer and the poor gets poorer Resource depletion: growth often involves using up the world's scarce resources at rates that are unsustainable |
| Measuring Economic Growth through GDP per capita | A better way to measure standard of living as it takes into account the economy's entire population Eg. China might be the world's second largest economy at US$10,736 bullion, but with a high population, it only has a GDP per capita of US$7808 in 2015. By comparison, Singapore has a GDP of US$293 billion, but a GDP per capita of US$53,004 in 2015. |
| Measuring Growth through HUMAN DEVELOPMENT INDEX (HDI) | Composite indicator that looks at factors beyond GDP (per capita) It measures three dimensions of development (including income levels): Healthcare - life expectancy, Education - mean years of schooling, Income levels - refer to GDP per capita |
| Limitations of using HDI to measure growth | Qualitative factors such as gender inequalities and human rights are ignored by HDI HDI does not take into account income distribution HDI ignores environmental issues HDI does not interpret living standards in accordance to cultural differences etc |
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