Chapter 15 Summary- EKN120

EKN 120

Chapter 15: Macroeconomic objectives
Economic Growth
 Economic Growth: Increase in real GDP
 It is measured as percentage rate of increase in real GDP:
 Economic Growth = GDPt-GDPt-1/GDPt-1 x 100
 Increase in real GDP per capita
 Growth as a goal
 Economic growth is one of the main macroeconomic objectives of a country
 Arithmetic of growth
o Rule of 70: is used to determine the number of years it takes for a variable to double
by dividing the number 70 by the variable’s growth rate
o Approximate number of years required to double real GDP = 70/annual percentage
rate of growth

Economic Growth in SA




Main Sources of Growth
 Increases in inputs
o Natural resources
o Human and physical capital
o Population/labour

,  Increases in resource productivity
o Improvement in technology
o Education and training
 Effects of Growth in SA
o Improved products and services
o Added Leisure
o Other impacts

Modern Economic growth
 Uneven distribution of growth
 Catching up is possible
 Is growth desirable and sustainable
o The antigrowth view
o In defence of economic growth

The business cycles
Phases of the business cycle




 The business cycle model shows how a nation’s real GDP fluctuates over time around the
growth trend (potential output)
 Twin problems of the business cycle are: unemployment and inflation
 Over the long run, the business cycle shows a steady increase in potential output in a
growing economy
 Recession occurs when there are 2 or more consecutive quarters of negative economic
growth
 This means GDP contracts during a recession
 Unemployment is high during a recession. Productivity tends to fall in the early stages of a
recession, then rises again as weaker firms close
 Living standards of people decline.
 Loss of jobs is known to have negative impact on the stability of families, and individuals’
health and well-being