Economic Growth

Meet the board of UK plc Chief Executive Finance Director Training & 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 Sustainable Economic Growth : economic growth that can continue over time and does not endanger future generations’ ability to expand productive capacity Trend Growth : 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) – 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 – Nominal GDP – measured in current prices and not adjusted to take account of inflation Real GDP – Real GDP – measured in current prices which are then adjusted to allow for inflation

Example Calculation Nominal GDP Growth New GDP – Old GDPx 100 = % growth Old GDP Real GDP GDP figure x base yr index = Real New GDP Current year price index Real GDP Growth Real New GDP – Old GDPx 100 = % growth Old 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 - £1,003,297mx100 = 11.7% £1,003,297m

Labour Productivity 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’? -sY -sY B0h8&feature=related B0h8&feature=related