The national economy and economic growth · GCSE Economics

Measuring the economy

Gross domestic product (GDP) is the total value of goods and services produced in a country in a year. It measures the size of the economy.
Economic growth is an increase in real GDP (GDP adjusted for inflation). Real GDP per head (GDP ÷ population) is a better measure of living standards.
The circular flow of income shows money flowing between households (who supply factors of production and spend) and firms (who pay incomes and produce goods).

Injections add money to the circular flow: investment, government spending and exports.
Withdrawals (leakages) take money out: savings, taxes and imports.
If injections are greater than withdrawals, the economy grows.

The economic cycle: growth (boom), slowdown, recession, recovery. A recession is two quarters in a row (six months) of falling real GDP.
Benefits of growth: higher living standards, more jobs, more tax revenue. Costs: pollution, using up resources, and inflation if growth is too fast.
Causes of growth: more investment, better education and training (human capital), new technology and higher productivity.

Gross domestic product: The total value of goods and services produced in a country in a year.
Economic growth: An increase in real GDP.
Real GDP: GDP adjusted to remove the effects of inflation.
GDP per head: GDP divided by the population.
Recession: Two quarters in a row of falling real GDP.
Circular flow of income: The flow of money between households and firms.
Injections: Money added to the circular flow: investment, government spending and exports.
Withdrawals: Money leaving the circular flow: savings, taxes and imports.