8/6/2019 To Measure Economic Growth

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To measure economic growth, first the GDP is measured, that is,

the market value of the final goods and services produced in an

economy during a specific time period. This nominal (marketvalue) GDP is then adjusted to remove the effects of inflation,

thus, converting the nominal value into real terms. The growth

rate is then the difference between the real GDP in this time

period and the real GDP in the previous time period, multiplied by

100 to express growth in a percentage form.

Economic growth is certainly a part of the economic well being of

a country. If economic growth is strong, employment will be

healthier. High growth rates will generate more income. GDP per

capita only provides an average income without revealing

anything about income distribution

To make accurate comparison of economic well being, other

information could be considered. Such as current level of

economic development, the distribution of income, the state of

environment,leisure time, education levels, health levels, degree

of corruption, the types of quality of goods and services being

produced.

The decrease in the unemployment rate and the increase in

economic growth would be seen as good for the economy.

However, these come with an increase in inflation. Remember thepossible shifts of AD and AS in the AD-AS Model. If AD rises, there

is more real GDP and more employment, but a higher price level.if

AD decreases, there is less real GDP and less employment, but the

price level will have decreased.this is partly good and bad.

Whereas in increase in AS is good and good- more real GDP, moreemployment and a lower price level

An increase in govt spending would increase AD, bringing out a

higher level of real GDP and contributing to economic growth. Themultiplier effect would mean that the actual increase in G would

result in a larger amount of AD because of the flow on effects to

the other components.

A disadvantage of the increase in G and subsequent increase inAD is that the rate of inflation would most certainly have risen.

Having placed the economy at or very near full employment, with

AD intersecting AS almost on the classical range of the curve, if AD

were to continue to increase demand-pull inflation would haveoccurred. Inflation carries with it possible economic costs, such as

reducing real incomelevels. If the economy nearing current

capacity levels, an increase in demand would have fuelled the

demand for imports. The suggestion here is that the economy did

not need any extra stimulation to AD by an increase in govt.

spending.

The non determinant involved in the change in the coffee market

is the change in input prices that has increased the production

costs and thus decreased supply. The non-price determinant

involved in the change in the tea market is the change in tastesand preferences that increased demand for tea

Assuming tea and coffee are substitutes, the increase in the price

of coffee would mean a decrease in the qty demanded for acoffee substitute (non-price determinant of demand;price of

related goods) coffee drinkers could have expected that the

increase in prices for coffee would make tea a cheaper option.

However, as the article suggests, for different reasons the price of

tea has also risen .