Introduction

Module Introduction

This is the first module that directly explores one of the most important topics in macroeconomics:

  • How do we measure economic production
  • What determines economic growth?

In this module we define GDP and explain why for the economy, the value of production equals income, which also equals expenditure. We describe how economic statisticians measure GDP and distinguish between nominal GDP and real GDP. The rate of growth of real GDP is the first major indicator of economic performance, which provides information about a country’s ability to increase its production of goods and services and in return increase income and standards of living over time. We explain and describe the uses of real GDP and its limitations.

Last, we discuss economic growth: its measurement, importance, historical data, and the theories that explain it. (1)

Learning Objectives

  • Define gross domestic product (GDP) as the measure of total output of an economy and explain its calculation.
  • Explain the Expenditure Approach and Income Approach via the Circular Flow Diagrams.
  • Explain the difference between real GDP and nominal GDP.
  • Identify the phases of a business cycle.
  • Define and calculate the economic growth rate.
  • Explain the rule of the 70 and implications of sustained growth.
  • Explain theories of economic growth.
  • Explain key factors that foster economic growth. (1)

Reading

  • Learning Unit