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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