Economic growth Learning outcome V n Define economic

Economic growth Learning outcome V n Define economic growth n Explain the difference between GNP and GDP n Describe the measures used to indicate economic growth n Explain the business cycle n Explain the trend rate and the output gap n Explain the determinants of economic growth n Evaluate the costs and benefits of economic growth Reading: Unit 26 A Leader in International Education in China

Economic growth The change in potential output of an economy measured by the change in real national income

Economic growth Q of Investment goods Growth in potential output O I II Quantity of consumption goods A Leader in International Education in China

Economic growth is measured in terms of national income n National income can be measured by GDP, GNP, GVA and Net national income at market prices (see p 165) n The two most common measurements are GDP and GNP n A Leader in International Education in China

GDP & GNP GDP stands for Gross Domestic Product n GNP stands for Gross National Product n The difference is that GNP includes income earned abroad on investments and assets minus income earned by foreigners on their investment and assets in the UK n A Leader in International Education in China

Economic growth n n Economic growth doesn’t usually follow a stable pattern instead there are times of quick growth followed by slower (or negative) growth rates These periods are often called booms and recessions In almost all cases over time an economy will grow, this is shown by the trend line The trend line approximates the growth in GDP A Leader in International Education in China

National output Economic growth over time Trend output Actual output O A Leader in International Education in China Time

Economic growth n n It can be seen that at times the economic growth is above the trend line and at times below the trend line When growth is above the trend line it is known as a positive output gap When growth is below the trend line it is known as a negative output gap The fluctuations around the trend line are known as the business cycle (sometimes called the economic cycle) A Leader in International Education in China

Economic growth over time National output Positive output gap Trend output Positive output gap Actual output Negative output gap O A Leader in International Education in China Time

Economic growth Growth rates generally follow the pattern of boom followed by recession n Growth rates in developed nations often show a similar pattern to one another n It can be seen in the next graph how there are world boom periods and recessions n A Leader in International Education in China

Growth rates in the UK, France, USA, Germany and Japan UK Germany France USA Japan