GROWTH

DEFINITION EEEEconomic Growth occurs when a country increases its ability to satisfy consumer wants by producing more goods and services. IIIIt can lead to an improvement in development and thus peoples standard of living. IIIIn other words when the number of goods and services made in an economy increases.

TTTThis measure attempts to include ‘quality of life factors’. IIIIn addition to ECONOMIC MEASURES (production of goods & services), it also includes NON-ECONOMIC FACTORS (Health, Education, Environment, entertainment etc). NNNNet Social Welfare is also referred to as ‘STANDARD OF LIVING GROWTH AS NET SOCIAL WELFARE

IN SUMMARY……. GROWTH can be defined as as ….. 1)CHANGE 1)CHANGE IN REAL INCOME: INCOME: It refers to the actual actual economic output. The increase in value due to price increases are removed. The assumption is that OUTPUT = INCOME 2)INCREASE 2)INCREASE IN PRODUCTIVE CAPACITY: CAPACITY: All additions in capacity to the nations economy are assessed. It does not measure the actual output but total ability to produce goods & services. 3)CHANGES 3)CHANGES IN NET SOCIAL WELFARE: WELFARE: This measure helps in assessing the ‘Non-Economic’ factors like, Health, education etc in addition to Economic factors.

STRENGTHS & WEAKNESSES OF DEFINTIONS OF GROWTH STRENGTHS: It shows if the whole country is earning more income It shows if the whole country is earning more income Shows if more Goods & Services have been produced Shows if more Goods & Services have been produced Shows if more goods & services can be bought. Shows if more goods & services can be bought. It’s objective; it’s measurable. It’s objective; it’s measurable. WEAKNESSES: It does not show distribution of income It does not show distribution of income Does not show composition of output. Does not show composition of output. Does not show impact on environment Does not show impact on environment Illegal transactions not recorded. Illegal transactions not recorded. Does not include wealth Does not include wealth REAL INCOME

PRODUCTIVE CAPACITY STRENGTH: Shows if the country is able to increase it’s capacity to produce more. Shows if the country is able to increase it’s capacity to produce more.WEAKNESSES: Does not indicate if MORE goods & services have been actually produced Does not indicate if MORE goods & services have been actually produced DIY activities not included DIY activities not included Does not indicate efficiency Does not indicate efficiency Does not show standard of living. Does not show standard of living.

NET SOCIAL WELFARE STRENGTHS: Includes non-economic welfare Includes non-economic welfare Takes into account the environmental impact Takes into account the environmental impact Shows availability of public facilities Shows availability of public facilitiesWEAKNESS: Not objective – difficult to measure the ‘well-being’ component. Not objective – difficult to measure the ‘well-being’ component. Distortion possible – even though fewer goods & services produced. Distortion possible – even though fewer goods & services produced. Difficult to compare internationally Difficult to compare internationally

What Is GDP?  GDP means Gross Domestic Product.  The total monetary value of goods and services produced in an economy in a year

CALCULATING GDP :INCOME, EXPENDITURE AND PRODUCTION APPROACH HOUSEHOLD SECTOR FIRMS PAYMENT FOR RESOURCES (1) GOODS & SERVICES (3) PAYMENT FOR G & S (2) 1]INCOME APPROACH OR METHOD 3]PRODUCTION APPROACH OR METHOD 2]EXPENDITURE APPROACH

INCOME APPROACH  This method measures GDP as the sum of all incomes earned by the households for use of the factors of production.  To calculate GDP by this method, statistics NZ, uses data collected from I)employees - Salaries & Wages II)Businesses - Profits III)Government - indirect taxes Under NZSNA, the terms used are as follows: Compensation of employees (salaries & wages) plusGross operating surplus (profits + depreciation) plusNet indirect taxes (indirect taxes minus subsidies) = GDP Income Approach

PRODUCTION OR VALUE ADDED ADDED APPROACH  Calculate  Calculate the value of goods & services by adding the costs of the firm involved in Production.  Statistics  Statistics NZ does this by collecting via surveys from NZ business.  The  The value of the GROSS OUTPUT of each industry is calculated. intermediate consumption (goods) sold to other firms towards final goods production is also calculated.  These  These two figures GROSS minus INTERMEDIATE, gives an estimate of the Value Added Added by the industry.  The  The value added by each of the industries is summed up and overall figure of GDP is arrived at. $100 $150 $50 Extraction of Raw materials (Clay) Manufacture of bricks Retail of Bricks PRODUCTION APPROACH FOR BRICK MAKING

NOMINAL vs REAL GDP NNNNOMINAL GDP:Current production valued at current prices OR this year’s production valued at this year’s prices. GDP = Quantity x Price RRRREAL GDP: Current production valued at a constant (base year) set of prices. Real GDP = Nominal GDP Price index X Base Year Price Index