1. Economic growth Learning outcome V Define economic growth
SBC Economics
Economic growth
Learning outcome V
Define economic growth
Explain the difference between GNP and GDP
Describe the measures used to indicate economic growth
Explain the business cycle
Explain the trend rate and the output gap
Explain the determinants of economic growth
Evaluate the costs and benefits of economic growth
Reading: Unit 26

2. Economic growth
The change in potential output of an economy measured by the change in real national income

3. Economic growth Growth in potential output II O I Q of Investment
goods
Growth in
potential output II O I
Quantity of consumption goods

4. Economic growth
Economic growth is measured in terms of national income
National income can be measured by GDP, GNP, GVA and Net national income at market prices (see p165)
The two most common measurements are GDP and GNP

5. GDP & GNP GDP stands for Gross Domestic Product
GNP stands for Gross National Product
The difference is that GNP includes income earned abroad on investments and assets minus income earned by foreigners on their investment and assets in the UK

6. Economic growth
Economic growth doesn’t usually follow a stable pattern instead there are times of quick growth followed by slower (or negative) growth rates
These periods are often called booms and recessions
In almost all cases over time an economy will grow, this is shown by the trend line
The trend line approximates the growth in GDP

7. Economic growth over time
National output
Trend
output
Actual
output O
Time

8. Economic growth
It can be seen that at times the economic growth is above the trend line and at times below the trend line
When growth is above the trend line it is known as a positive output gap
When growth is below the trend line it is known as a negative output gap
The fluctuations around the trend line are known as the business cycle (sometimes called the economic cycle)

9. Economic growth over time
Positive output gap
Trend
output
Positive output gap
National output
Actual
output
Negative output gap
Negative output gap O
Time

10. Economic growth
Growth rates generally follow the pattern of boom followed by recession
Growth rates in developed nations often show a similar pattern to one another
It can be seen in the next graph how there are world boom periods and recessions

11. Growth rates in the UK, France, USA, Germany and Japan