Chapter 5: Economic Growth and Business Cycles (2024) PDF

Definition and measurement of economic growth ============================================= Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another, usually on annual basis Economic growth is calculated on an annual bas...

Definition and measurement of economic growth ============================================= Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another, usually on annual basis Economic growth is calculated on an annual basis. Economic growth can be expressed in absolute terms, such as increasing from R 800 billion in 2020 to R840 billion in 2021. Thus, the economy has grown by R40 billion between 2020 and 2021.This growth of R40 billion in percentage terms would be 5%. ========================================================================================================================================================================================================================================================================================================================================================================================================================================================================== Economic growth rate = 5% ========================= Some problems associated with GDP: The following are the shortcomings of GDP: ============================================================================= - Non-market production - Economic welfare - Unrecorded activity - Data revisions - Non-market production - Government services that are not valued on market price but at cost. - Production of goods and services not sold in the market. - Economic welfare - Unwanted by-products (also called negative externalities) such as pollution, noise that are not adjusted for in the GDP - Difficulty in accounting for changes in quality of goods and services - Unrecorded activity - Underground economy/activities - Informal sector - Unrecorded activities may result in serious underestimation of the value of the GDP - Data revisions - Original estimates are frequently adjusted as new and better data becomes available. Business cycle ============== Business cycle refers to the pattern of upswing (expansion) and downswing (contraction) in an economy. 1. Downswing (contraction) 2. Trough 3. Upswing (expansion) 4. Peak (*Expand on the above and also determine the causes of business cycle*) ***Sources of economic growth*** Supply factors ============== Demand factors ============== - Institutions - Geography - Culture GOOD LUCK =========