Unit 4: Economic Growth

Pg 167-168

Economic Growth

• 4.1 Meaning & How to calculate economic growth.• 4.2 The Importance of achieving economic growth.• 4.3 Strategies which could be employed to achieve

economic growth:– Macro Strategies (Fiscal & Monetary Policies) – Micro Strategies (Encourage Business to produce more

output at faster and cheaper rates)• 4.4 Constraints on Economic Growth• 4.5 South Africa’s recent growth experience (pg. 168)

Economic Growth

Economic Growth: refers to the changes in the level of economic activity over a period of time.

Economic Activity is expressed as Total Output = GDP

To determine economic growth year-on-year we have to calculate the percentage change in GDP…

HOW? Method 1: (GDP in year 2 - GDP in year 1)/Year 1 x 100Method 2: ((GDP in year 2 / GDP in year 1) - 1) x 100

* Please note the mistake in the text book

Economic Growth

Calculate the econmic growth in 2014 and 2015 for countries A and B:

Method 1: (GDP in year 2 - GDP in year 1)/Year 1 x 100Method 2: ((GDP in year 2 / GDP in year 1) - 1) x 100

Country Name GDP: 2013 GDP: 2014 GDP: 2015

Country A $2.000.000,00 $2.250.000,00 $2.400.000,00

Country B $1.500.000,00 $1.400.000,00 $1.600.000,00

Economic Growth

Calculate the econmic growth in 2014 and 2015 for countries A and B:

Method 1: (GDP in year 2 - GDP in year 1)/Year 1 x 100Method 2: ((GDP in year 2 / GDP in year 1) - 1) x 100

Country Name GDP: 2013 GDP: 2014 GDP: 2015Country A $2.000.000,00 $2.250.000,00 $2.400.000,00Country B $1.500.000,00 $1.400.000,00 $1.600.000,00

% Change in GDP Year-on-Year 2014 2015

Country A 12,50% 6,67%

Country B -6,67% 14,29%

Economic Growth

4.2: Importance of Economic Growth

To achieve higher levels economic development the in GDP needs to be higher than the in the population.

In SA: Government has earmarked a growth rate of 5-6% in order to create jobs and reduce the unemployment. If this rate is achieved, 5mil jobs could be created over 10 years.

Economic Growth4.3: Methods to achieve economic growth: Both Macro and Micro strategies could be employed to achieve growth

Macro Strategies: Government can use various combinations of Fiscal & Monetary policies to stimulate economic growth

Government Spending

Taxes

Interest Rates

Micro Strategies: More efficient businesses can produce output at cheaper rates, as well as faster. Output and employment is subsequently increased. Demand increases further for goods and growth occur.

4.4: Constraints on economic growth: Lack of skills… Lack of capital investment… Lack of infrastructure…

Recent Growth Rate in SA1970-1992 = Average 1% (Apartheid & Sanctions)

1994-2000 = Average 4% (GEAR: 1996-2003 -> High Interest and Inflation hamper growth)

2004-2008 = Average 5% (ASGISA -> Growth touched between 6 & 7% during this period)

In 2008 the Global Recession hit, which negatively impacted on growth globally.

SA GDP: Figure 8.7 on page 168

FYI: Recent economic growth stats of various countries

Country Name 2010 2011 2012 2013 2014 AveIndia 10,26 6,64 5,08 6,90 7,42 7,26 Botswana 8,56 6,05 4,83 9,32 4,42 6,64 Nigeria 7,84 4,89 4,28 5,39 6,31 5,74 Brazil 7,57 3,92 1,76 2,74 0,14 3,23 Russian Federation 4,50 4,26 3,41 1,34 0,64 2,83 Australia 1,96 2,32 3,73 2,51 2,47 2,60 Canada 3,37 2,96 1,92 2,00 2,53 2,56 South Africa 3,04 3,21 2,22 2,21 1,52 2,44 United States 2,53 1,60 2,32 2,22 2,39 2,21 Germany 4,09 3,59 0,38 0,11 1,60 1,95 United Kingdom 1,91 1,65 0,66 1,66 2,55 1,69 Finland 2,99 2,57 -1,43 -1,32 -0,11 0,54 Greece -5,45 -8,86 -6,57 -3,90 0,77 -4,80

Source: World Bank