Economic Growth Meet the board of UK plc

Economic Growth

Meet the board of UK plc , y e t i g c Chief Executive n a e l p l a a c o h s s C l ’ y a e n t h s a l T f i p o h m sw s l o e c v e s e l e Deputy Chief u l a h t Executive s o i h Chairwoman d v g w i e n o h r a r p e t G h u e t p h t t g ou essin ft by ctors r e. Trainingir&e l d Business g d d a n i f o w Development Finance Director o d r r r a o Director o b b

The UK trend

What words best describe the type of growth UK governments wish to have? • • Stable Sustainable Steady Controlled

Two key terms: Sustainable Economic Growth : economic growth that can continue over time and does not endanger future generations’ ability to expand productive capacity Trend Growth : the expected increase in potential output over time. It is a measure of how fast the economy can grow without generating inflation

Measuring Economic Growth Gross Domestic Product (GDP) – the sum of consumer expenditure, business investment, government spending and export earnings, less import expenditure (C+I+G+(X-M)) Nominal GDP – measured in current prices and not adjusted to take account of inflation Real GDP – measured in current prices which are then adjusted to allow for inflation

Example Calculation Nominal GDP Growth New GDP – Old GDP x 100 = % growth Real GDP figure x base yr index Current year price index = Real New GDP Real GDP Growth Real New GDP – Old GDP x 100 = % growth

Complete the activity at the top of page 109 a) £ 1, 299, 622 m – £ 1, 003, 297 m b) £ 1, 299, 622 m x 100 116 (inflation index) x 100 = 29. 5% = £ 1, 120, 364 m c) £ 1, 120, 364 m - £ 1, 003, 297 m x 100 = 11. 7%

Labour Productivity : output per worker hour So bear in mind that production may increase but productivity may fall if less skilled workers are recruited to make the extra. Is such growth in production sustainable? . . . Only if the productivity of these workers can be improved through training

Problems in measuring GDP • How does GDP growth compare to population growth? Are we better off as individuals? This issue is solved by measuring GDP per capita (per person) • How do we know what’s happening in the ‘informal economy’? This is the name for goods and services traded illegally due to their nature, or to avoid taxation – Distorts GDP and inflation measures – Reduces government tax revenue

Is it ‘All About the Money, Money’? • http: //www. youtube. com/watch? v=Ep 4 DWx 1 --s. Y • http: //www. youtube. com/watch? v=a 0 m_uu. F B 0 h 8&feature=related