economic growth
Economic Issues
Economic Growth
Economic Growth involves an increase in the volume of goods and services that an economy produces over a period of time. It is measured by the annual rate of change in real Gross Domestic Product (GDP), i.e. the percentage increase in the value of goods and services produced in an economy over a period of time, usually one year, adjusted for inflation
Aggregate Demand
Aggregate Demand (AD) is the total level of expenditure in the economy over a given period of time. It includes consumption, investment, government spending and net export spending (export spending minus import spending).
Aggregate Supply (Y) is the total level of income in the economy over a given period of time. Part of national income is collected by the government through taxation and the rest is either spent on consumption or is saved.
Equilibrium
Sector of Economy
Equilibrium when
Conditions for equilibrium
1 sector
Y = C
(Y = C)
2 sector
Y = C + S
(S = I )
3 sector
Y = C + I + G
(G = T)
4 sector
Y = C + I + G + X = C + S + T + M
(X = M)
Whole Economy
Y = C + I + G + X – M
Aggregate Supply = Aggregate Demand
(X – M = CA)
Changes in leakages and injections are what influence the level of economic activity. If injections are greater than leakages, the economy will grow, but if leakages are greater than injections, economic growth will decrease and the economy will contract.
Injections and Withdrawals (I+G+X; S+T+M)
Influences on Consumption (C) and Savings (S)
Consumer expectations
The level of interest rates
The distribution of income
Consumption by households makes up 60% of AD
Influences on Investment (I)
The cost of capital equipment
Changes in interest rates
Changes in government policies relating to investment allowances and tax concessions on capital goods
Changes in the price of productivity of labour (labour being a substitute for capital in the production process)
Business
Economic Growth
Economic Growth involves an increase in the volume of goods and services that an economy produces over a period of time. It is measured by the annual rate of change in real Gross Domestic Product (GDP), i.e. the percentage increase in the value of goods and services produced in an economy over a period of time, usually one year, adjusted for inflation
Aggregate Demand
Aggregate Demand (AD) is the total level of expenditure in the economy over a given period of time. It includes consumption, investment, government spending and net export spending (export spending minus import spending).
Aggregate Supply (Y) is the total level of income in the economy over a given period of time. Part of national income is collected by the government through taxation and the rest is either spent on consumption or is saved.
Equilibrium
Sector of Economy
Equilibrium when
Conditions for equilibrium
1 sector
Y = C
(Y = C)
2 sector
Y = C + S
(S = I )
3 sector
Y = C + I + G
(G = T)
4 sector
Y = C + I + G + X = C + S + T + M
(X = M)
Whole Economy
Y = C + I + G + X – M
Aggregate Supply = Aggregate Demand
(X – M = CA)
Changes in leakages and injections are what influence the level of economic activity. If injections are greater than leakages, the economy will grow, but if leakages are greater than injections, economic growth will decrease and the economy will contract.
Injections and Withdrawals (I+G+X; S+T+M)
Influences on Consumption (C) and Savings (S)
Consumer expectations
The level of interest rates
The distribution of income
Consumption by households makes up 60% of AD
Influences on Investment (I)
The cost of capital equipment
Changes in interest rates
Changes in government policies relating to investment allowances and tax concessions on capital goods
Changes in the price of productivity of labour (labour being a substitute for capital in the production process)
Business