Economic Growth Measurement
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Questions and Answers

What is the formula to calculate GDP growth?

  • Real GDP2022 / Real GDP2021 x 100
  • Real GDP2022 - Real GDP2021
  • (Real GDP2022 - Real GDP2021) / Real GDP2021 x 100 (correct)
  • (Real GDP2022 x Real GDP2021) / 100

    • What are the main sources of economic growth?

  • Inputs and factors that decrease productivity of inputs
  • Population growth and real GDP growth
  • Health, education, technology, and business environment
  • Land, labor, capital, and entrepreneurship (correct)

    • What is a broader concept of measuring economic growth that considers welfare objectives?

  • Growth of per capita real GDP (correct)
  • Growth of real GDP
  • Growth of entrepreneurship
  • Growth of population

    • What is a business cycle?

    <p>Recurring upward and downward movements in economic activity</p> Signup and view all the answers

    What is the peak phase of a business cycle?

    <p>A temporary local maximum of economic activity</p> Signup and view all the answers

    What characterizes a recession?

    <p>A decline in real output lasting six months or longer</p> Signup and view all the answers

    What type of unemployment occurs when people transition from one job to another?

    <p>Frictional unemployment</p> Signup and view all the answers

    What is the result of frictional unemployment?

    <p>Higher efficiency</p> Signup and view all the answers

    Why is frictional unemployment considered inevitable?

    <p>Because the labour market does not operate perfectly and instantaneously</p> Signup and view all the answers

    What is a possible remedy for frictional unemployment?

    <p>Developing efficient systems or databases that provide information on existing opportunities for easy access by job seekers</p> Signup and view all the answers

    Which type of unemployment occurs when people are not actively seeking a job?

    <p>Discouraged workers</p> Signup and view all the answers

    Why does the unemployment rate not reflect the actual rate of unemployment?

    <p>Because it does not count discouraged workers</p> Signup and view all the answers

    What is demand-pull inflation caused by?

    <p>Excess aggregate expenditure beyond the economy's capacity to produce</p> Signup and view all the answers

    What is the result of an increase in aggregate spending when the economy is at full employment?

    <p>An increase in the price level</p> Signup and view all the answers

    What type of inflation is caused by an increase in per unit costs of production?

    <p>Cost-push inflation</p> Signup and view all the answers

    What happens when aggregate demand increases beyond the economy's capacity to produce?

    <p>The price level is pulled upwards</p> Signup and view all the answers

    What is another term for demand-pull inflation?

    <p>Demand-side inflation</p> Signup and view all the answers

    What is the term for those who are willing and able to work, but are not institutionalized and are not employed or seeking work?

    <p>Not in Labour Force</p> Signup and view all the answers

    What is the formula to calculate the unemployment rate?

    <p>Unemployment Rate = Unemployed x100 / Labour Force</p> Signup and view all the answers

    What is the term for the proportion of a country's working age population that is working or actively seeking work?

    <p>Labour Force Participation Rate (LFPR)</p> Signup and view all the answers

    What category includes persons who are not seeking work, either because they do not want jobs or have given up looking for jobs, homemakers, and adult full-time students?

    <p>Not in Labour Force</p> Signup and view all the answers

    What is the term for all persons 16 years or older who are able to work, including those in the labour force and those not in the labour force?

    <p>Working Age Population</p> Signup and view all the answers

    What is the term for the number of persons who are willing and able to work, including the employed and unemployed?

    <p>Labour Force</p> Signup and view all the answers

    What happens to the Labour Force Participation Rate (LFPR) during an economic recession?

    <p>It decreases</p> Signup and view all the answers

    What is the term for the number of persons who are employed and unemployed?

    <p>Labour Force</p> Signup and view all the answers

    What is the category for those who are in correctional and mental health institutions?

    <p>Institutionalized</p> Signup and view all the answers

    What is the term for the proportion of unemployed persons to the total labour force?

    <p>Unemployment Rate</p> Signup and view all the answers

    What is the relationship between the value of money and the price level?

    <p>The value of money decreases when the price level rises</p> Signup and view all the answers

    How does inflation affect savers?

    <p>Inflation decreases the real value of savings</p> Signup and view all the answers

    Who benefits from inflation?

    <p>Only debtors</p> Signup and view all the answers

    What is the central bank's objective regarding inflation?

    <p>To achieve price stability</p> Signup and view all the answers

    What is the relationship between inflation and output?

    <p>The relationship between inflation and output is debated among economists</p> Signup and view all the answers

    Study Notes

    Measurement of Economic Growth

    • GDP growth can be calculated using the formula:
      • GDP growth = (Real GDP this year - Real GDP last year) / Real GDP last year x 100.
    • Real GDP growth from 2021 to 2022 was 10%, indicating economic expansion.
    • Real GDP growth from 2022 to 2023 was -5.5%, indicating economic contraction.
    • Key sources of economic growth include land, labor, capital, and entrepreneurship, alongside factors that enhance productivity.
    • Productivity improvements arise from advancements in health, education, technology, and the business environment.
    • Per capita real GDP is defined as real GDP divided by the population, reflecting welfare better than overall real GDP growth.
    • If the population grows faster than real GDP, per capita GDP can fall, indicating a decline in living standards.

    Business Cycles: An Introduction

    • Business cycles represent fluctuations in economic activity, reflected in output and employment.
    • Four phases of a typical business cycle:
      • Peak: highest economic activity before a downturn.
      • Recession: a period of declining economic activity lasting six months or longer.
      • Trough: the lowest point of economic activity before recovery.
      • Recovery: a phase where economic activity increases after a trough.

    Phases of the Business Cycle

    • Peak:

      • Indicates a local maximum in economic activity.
      • Reflects full employment and real GDP near full productive capacity.
      • Increased spending may lead to rising prices as output reaches limits.

    • Recession:

      • Follows the peak, characterized by decreasing economic activity.
      • Defined by a decline in real output and unemployment rising due to economic contraction.

    Unemployment Types

    • Frictional Unemployment:

      • Occurs when individuals transition between jobs or seek new employment.
      • Seen as a natural and somewhat desirable aspect of the labor market, allowing for better job matching.

    • Structural Unemployment:

      • Arises from mismatches between skills and job requirements or geographical dislocation.

    • Cyclical Unemployment:

      • Linked to the economic cycle, increasing during recessions and decreasing during recoveries.

    Inflation Theories

    • Demand-Pull Inflation:

      • Occurs when aggregate demand exceeds supply capabilities, leading to price increases.

    • Cost-Push Inflation:

      • Results from rising production costs, such as supply shocks, leading to higher prices.

    Labour Market Considerations

    • Labour Force:

      • Comprises individuals aged 16 and older, willing and able to work, including both employed and unemployed individuals.

    • Working Age Population:

      • Includes all individuals able to work, distinguishing between those in the labour force and those not seeking work.

    • Unemployment Rate:

      • Calculated as the number of unemployed divided by the labor force, providing a key indicator of economic health.

    • Labour Force Participation Rate (LFPR):

      • Proportion of working-age population actively engaged in the labor market.
      • Typically lower during economic downturns due to discouraged job seekers.

    Effects of Inflation

    • Rising price levels diminish the purchasing power of money, impacting savers and the real value of savings.
    • Inflation benefits debtors as they repay loans with less valuable currency, creating concerns for creditors.
    • Policymakers prioritize price stability to mitigate the redistribution effects of inflation on income and wealth.

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    Description

    Quiz on measuring economic growth using GDP, real GDP, and growth rates, including calculations and interpretations.

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