Economic Growth

Unit 11 - Lesson 1

Learning outcomes:

Define Economic Growth

Calculate the rate of economic growth from a set of data
Describe, using a production possibilities curve (PPC) diagram, economic
growth as an increase in actual output caused by factors including a reduction
in unemployment and increases in productive efficiency, leading to a
movement of a point inside the PPC to a point closer to the PPC.

Describe, using a PPC diagram, economic growth as an increase in

production possibilities caused by factors including increases in the
quantity and quality of resources, leading to outward PPC shifts.

Economic Growth
Increase in the real quantity of goods and services
produced within a country over a specific period of time.
Economic Growth is measured using Real figures:
Real figures eliminate the impact of price changes on
GDP
Real GDP will illustrate how much or little output produced
in an economy changes in a given period.

Real GDP & Real GDP per capita

Real GDP measures the
total output in an economy.
Real GDP per capita total
output of an economy per
person
These figures are both
important in analyzing
Economic Growth. Both
figures will vary.

http://i.telegraph.co.
uk/multimedia/archive/01796/Bric-GDPgraphic_1796645b.jpg

Calculating Economic Growth

To calculate the Economic Growth of an economy, you need to find the
percentage change in Real GDP between two years.
Percentage change = New - Old divided by old xs 100
Example: Calculate the Economic Growth and in Country A:
2014: $150,000

2015: $166,000

% change = $166,000 - $150,000 divided by $150,000 xs 100

Real GDP increased by 10.66% from 2014 - 2015.
Use the same formula to calculate the Real GDP per capita

Real GDP & GDP per capita

Because Real GDP is positive, it does not mean that the Real GDP per capita
will also be positive. Why?
Depends on how much the population has changed during that time period.
If Real GDP is growing faster than the population then the Real GDP per capita
will be positive growth.
If Real GDP is growing slower than the population then the Real GDP per
capita will be negative.
% change in Real GDP per capita =
% change in Real GDP - % change in population

PPF & Economic Growth

PPF shows the combination of goods that can
be produced in an economy with fixed
technology and resources provided there is
productive efficiency in the economy.
Maximum employment does not mean full
employment.
Means there is ZERO unemployment
therefore it is very unlikely an economy
would operate on the frontier.

http://i.investopedia.
com/inv/dictionary/terms/ppf.gif

Increases in Actual Output

It is very unlikely for an economy to
produce on the frontier, they are most
likely to be operating at some point within.
Two factors that can contribute to an
increase in actual output (Point A - B):
1. Reductions in unemployment
2. Increase in Productive Efficiency
Increases in either will only result in
limited economic growth.

Tragakes pg. 296

Increases in the PPF

For long-term economic growth, the PPF need
to shift outwards.
Reasons for shift:
1. Increases in the quantity of
resources/factors of production
2. Improvement in the quality of the factors of
production
a. More educated work force
b. Improved capital through advancement
in technology

Tragakes pg. 296

Decrease in PPF
A decrease in the PPF is shown by
an inward shift of the frontier.
Causes:
1. Deterioration in the quality of the
factors of production
2. Decrease in the quantity of
resources
a. Depleting natural resources

Tragakes, pg. 296

Non-parallel Shifts in the PPF

Improvement in the factors of production
for some goods can improve while others
remain constant resulting in a non-parallel
shift in the PPF.
Examples:
1. Improvements in technology favoring
one good over another
2. Influx of migrant workers providing a
surplus of unskilled labor

Tragakes, pg. 296