ECONOMICS 120
SUMMARY
CHAPTER 15: MACROECONOMIC
OBJECTIVES
LEARNING OUTCOMES:
• How economic growth is measured.
• About the business cycle and its primary phases
• How unemployment and inflation are measured
• About the types of unemployment and inflation and their economic impacts
• About measuring income inequality
ECONOMIC GROWTH
Economic growth is either an increase in real GDP occurring over some time period when GDP is defined as the
value of final goods within the borders of the country or
An increase in real GDP per capita occurring some time period when GDP per capita indicates the average share
of each citizen in the GDP.
Example:
If real GDP is R100 million and the population is 50 million people, the real GDP per capita is R2 (R100/50)
The generally accepted calculation for economic growth is:
• A percentage of growth per quarter (3-month period)
Quote:
"Economic growth lessens the burden of scarcity."
The mathematical approximation called "The rule of 70":
Approximate number of years to double real GDP = (70 ÷ Annual percentage rate of growth.)
Example:
, South Africa has a 2% growth rate. The US has an 8% growth rate. The "Rule of 70" approximates that it will
take South Africa 35 years to double this rate and just only 9 years for the US to double its rate.
Institutional Structures That Promote Economic Growth:
• Strong property rights
• Patent and copyrights
• Efficient financial institutions
• Literacy and widespread education
• Free Trade
• A competitive market system
MAIN SOURCES OF GROWTH:
1. Supply Factor
2. Demand Factor
3. Efficiency Factor
4. Labour and Productivity
SUPPLY FACTOR
• Increase in quality and quantity of natural resources.
• Increase in quality and quantity of human resources.
• Increase in supply of capital goods.
• Improvements of technology
Any increase/improvement in these will increase the potential size of an economy's GDP.
DEMAND FACTOR
The demand factor acknowledges that economic growth requires an increase in total spending to realise the
output gains made possible by production capacity.
EFFICIENCY FACTOR
An economy must achieve economic efficiency in addition to full employment if it is to maximise the amount of
satisfaction that can be derived from its scarce resources.
To do this it must achieve:
• Productive Efficiency: maximise use of resources in the least costly way.
• Allocative Efficiency: Production of the right combination of goods and services that will maximise
people's utility.
LABOUR AND PRODUCTIVITY
There are two ways to increase real output and income:
1. Increase input of resources.
2. Increasing productivity of those inputs.
Real GDP = Hours of work (Labour inputs) × Labour productivity
SUMMARY
CHAPTER 15: MACROECONOMIC
OBJECTIVES
LEARNING OUTCOMES:
• How economic growth is measured.
• About the business cycle and its primary phases
• How unemployment and inflation are measured
• About the types of unemployment and inflation and their economic impacts
• About measuring income inequality
ECONOMIC GROWTH
Economic growth is either an increase in real GDP occurring over some time period when GDP is defined as the
value of final goods within the borders of the country or
An increase in real GDP per capita occurring some time period when GDP per capita indicates the average share
of each citizen in the GDP.
Example:
If real GDP is R100 million and the population is 50 million people, the real GDP per capita is R2 (R100/50)
The generally accepted calculation for economic growth is:
• A percentage of growth per quarter (3-month period)
Quote:
"Economic growth lessens the burden of scarcity."
The mathematical approximation called "The rule of 70":
Approximate number of years to double real GDP = (70 ÷ Annual percentage rate of growth.)
Example:
, South Africa has a 2% growth rate. The US has an 8% growth rate. The "Rule of 70" approximates that it will
take South Africa 35 years to double this rate and just only 9 years for the US to double its rate.
Institutional Structures That Promote Economic Growth:
• Strong property rights
• Patent and copyrights
• Efficient financial institutions
• Literacy and widespread education
• Free Trade
• A competitive market system
MAIN SOURCES OF GROWTH:
1. Supply Factor
2. Demand Factor
3. Efficiency Factor
4. Labour and Productivity
SUPPLY FACTOR
• Increase in quality and quantity of natural resources.
• Increase in quality and quantity of human resources.
• Increase in supply of capital goods.
• Improvements of technology
Any increase/improvement in these will increase the potential size of an economy's GDP.
DEMAND FACTOR
The demand factor acknowledges that economic growth requires an increase in total spending to realise the
output gains made possible by production capacity.
EFFICIENCY FACTOR
An economy must achieve economic efficiency in addition to full employment if it is to maximise the amount of
satisfaction that can be derived from its scarce resources.
To do this it must achieve:
• Productive Efficiency: maximise use of resources in the least costly way.
• Allocative Efficiency: Production of the right combination of goods and services that will maximise
people's utility.
LABOUR AND PRODUCTIVITY
There are two ways to increase real output and income:
1. Increase input of resources.
2. Increasing productivity of those inputs.
Real GDP = Hours of work (Labour inputs) × Labour productivity
