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A.S 2.3 Growth Revision 4 credits Name________________ Define the words • Economic growth _________________________________ ________________________________________________ • Gross Domestic Product ____________________________ ________________________________________________ • Nominal GDP ____________________________________ _______________________________________________ • Real GDP________________________________________ • Productive Capacity _______________________________ ________________________________________________ • Net Social Welfare _________________________________ ________________________________________________ Define the words • Economic growth – An increase in the amount of goods and services produced in an economy • Gross Domestic Product – The value of all goods and services produced in an economy in a year • Nominal GDP The value of all goods and services produced in an economy in a year – Measured in current-year dollars • Real GDP nominal GDP adjusted for inflation • Productive Capacity the potential of a Nations resources, • Net Social Welfare Economic welfare + non-economic welfare • 1. 2. 3. Measures of Economic Growth Name the three different ways economic growth can be measured _____________________ _____________________ _____________________ 4. Why might net social welfare be a better measure of economic growth than real GDP ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ 5. Explain why real GDP may be a better measure than nominal GDP ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ • 1. 2. 3. Measures of Economic Growth Name the three different ways economic growth can be measured Real GDP Productive Capacity Net Social Welfare 4. Why might net social welfare be a better measure of economic growth than real GDP Net social welfare includes the value of goods and services being produced as well as non economic factors such as, levels of pollution, education and life expectancy. Real GDP only shows whether more is being produced but does not give us an indication of whether people’s standard of living has deteriorated. 5. Explain why real GDP may be a better measure than nominal GDP Real GDP takes out the effects of inflation so gives a real measure for whether more goods and services have been produced. Nominal GDP may show increases if prices have risen. Therefore Real GDP is a better measure of economic growth. Define these words • Consumer Goods ________________________________ ______________________________________________ • Capital Goods __________________________________ ______________________________________________ • Human Capital _________________________________ ______________________________________________ • Savings ______________________________________ • Investment _____________________________________ Define these words • Consumer Goods – Goods and services which are used by consumers • Capital Goods Human made goods used to produce other goods and services • Human Capital The skills, knowledge and abilities of employees • Savings Income not spent • Investment Purchasing capital equipment Production Possibilities Curve • Name the two assumptions made when drawing the PPF 1. _________________________ 2. _________________________ When either of these factors change, the PPF will shift Show the effect of the changes in the following PPF models Peas Peas Carrots New technology applying to both peas and carrots Capital Goods Capital Goods Carrots New Technology applying to only the production of peas Consumer Goods Increase in productive capacity Consumer Goods Increase in GDP Production Possibilities Curve • Name the two assumptions made when drawing the PPF 1. There is a fixed level of technology 2. There is a fixed quantity of resources When either of these factors change, the PPF will shift Show the effect of the changes in the following PPF models Peas Peas Carrots New technology applying to both peas and carrots Capital Goods Capital Goods Carrots New Technology applying to only the production of peas Consumer Goods Increase in productive capacity Consumer Goods Increase in GDP Aggregate Demand • AD = C + I + G + ( X –M ) • GDP = ______________________ Consumption increases if *__________________ *__________________ State what each of the Symbols stand for C =___________________ I =___________________ G =____________________ X = _________________ M=________________ *_________________ *__________________________ *________________________ Investment increases if *____________________ *________________________ Imports decrease when Exports increase when *_____________________ *_______________________ *_____________________ *____________________________ Aggregate Demand AD = C + I + G + ( X –M ) • GDP =C + I + G + ( X –M ) Consumption increases if • Incomes rise • Income taxes fall State what each of the Symbols stand for C = Consumption I =Investment G = Government Spending X = Exports M=Imports • Interest rates fall • Inflationary expectations increase • Consumer confidence improves Investment increases if • Interest Rates fall • Business confidence rises Exports increase when • The exchange rate falls Imports decrease when • Incomes in NZ fall • The exchange rate falls • Incomes overseas rise Aggregate Supply • Define AS ________________________________ • Name the three factors that will cause AS to The AD/AS model change 1. __________________ 2. __________________ 3. __________________ What five factors may cause AS to increase *_________________________ *_________________________ *_________________________ *__________________________ *__________________________ Aggregate Supply • Define AS ________________________________ • Name the three factors that will cause AS to The AD/AS model change 1. Technology 2. Productivity 3. Cost of imported raw materials What five factors may cause AS to increase *Fall in cost of raw materials * Increase in productivity *Fall in nominal wages *Fall in the price of oil * An appreciation of the exchange rate Complete the circular flow model below Name the three Injections into the circular flow Name the three withdrawals out of the circular flow • ____________________________ • ____________________________ • ____________________________ • ____________________________ • ____________________________ • ____________________________ Complete the circular flow model below Name the three Injections into the circular flow Name the three withdrawals out of the circular flow • Investment • Export receipts • Government spending • Savings • Taxes • Imports Positive and Negative Impacts of Growth Group Positive Impact Negative Impact Households * * * * * * * * * Firms * * * * * Government * * * * Environment * * * * * * * * *