WHAT

IS ECONOMIC GROWTH?
Every economy produces goods and services. If this year our economy produced more goods and services than last year, it means we have economic growth. economy=country

HOW DO WE DEFINE ECONOMIC GROWTH? We define economic growth by:

GDP gross domestic product; goods and services produced in the country, value of goods and services produced by people from one country GNP gross national product; total income of people from one country, no matter in what country they were selling their goods and services; GNP= GDP+ net income from assets abroad assets = your goods or services which have value

IS INFLATION AND DEFLATION IMPORTANT FOR ECONOMIC GROWTH? Yes, because inflation and deflation can make it difficult to measure economic growth.
For example, if GDP goes up in a country by 1% in a year, we dont know if it happened because of inflation or because people really produced more goods and services. So it is the best to measure economic growth by GDP. Inflation the prices of goods and services in an economy over some time increase but at the same time the value of your currency decreases. e.g. year 2000 in Poland 1 car = PLN 1000 year 2001 in Poland 0,7 car = PLN 1000 Deflation the prices of goods and services decrease but at the same time the value of your currency increases. e.g. year 2001 in Poland 0,7 car = PLN 1000 year 2002 in Poland 1,2 car = PLN 1000

HOW DO WE COMPARE COUNTRIES USING GDP? To compare the growth per person between
countries we choose one currency USD. It is important to observe the exchange rate of this currency.

ECONOMIC GROWTH VS BUSINESS CYCLE Economists make difference between:

Oshort run economic growth

and Olong run economic growth Short run economic growth is the business cycle. Here we can see booms (big increase) and drops (big decrease) in production over a month or year. Economic growth is best to observe by looking at long run trend in production.

WHAT IS THE BUSINESS CYCLE? Business cycle, or economic cycle, is about

changes in production, trade or any business activity over a number months or years. Business cycle shows how the levels of GDP move up or down, also in relation to long term growth trend. We can observe very fast economic growth (boom) or very big decrease (recession).

HOW DO WE MEASURE BUSINESS CYCLE? We measure the business cycle by looking at

growth rate (level of growth) of REAL GROSS DOMESTIC PRODUCT. Real GDP measures changes in production over a period of time in a country and is calculated in market prices. Inflation doesnt influence Real GDP so it is good to use it for measuring the business cycle, because we will see only changes in levels of production.