Economic Growth

Meet the board of UK plc

Chief Executive

Finance DirectorTraining &

Development Director

Business Development

Director

Deputy Chief Executive Chairwoman

The Challenge

Grow the company’s capacity,

output and sales whilst also

addressing the high levels of

borrowing left by the previous

board of directors

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 GrowthNew GDP – Old GDP x 100 = % growthOld GDP

Real GDPGDP figure x base yr index = Real New GDPCurrent year price index

Real GDP GrowthReal New GDP – Old GDP x 100 = % growthOld GDP

Complete the activity at the top of page 109

a) £1,299,622m – £1,003,297m x100 = 29.5%£1,003,297m

b) £1,299,622m x 100 = £1,120,364m 116 (inflation index)

c) £1,120,364m - £1,003,297m x100 = 11.7%£1,003,297m

Labour Productivity

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, Money’?

• http://www.youtube.com/watch?v=Ep4DWx1--sY

• http://www.youtube.com/watch?v=a0m_uuFB0h8&feature=related