Introduction

Watch the following video clip on GDP and Happiness

The meaning of economic growth: Activities

1. Economic growth occurs when a country produces more goods and services from one period to the next.

Correct. The statement is indeed true.

When a country produces more goods and services from one period to the next, economic growth occurs.

Incorrect.  The statement is true.

When a country produces more goods and services from one period to the next, economic growth occurs.

2. Economic growth is a good indicator of the level of total production in a country.

Incorrect.  The statement is false.

It is important not to confuse levels with rates of change.  Economic growth gives us information about the change in the level of total production and not about the level of production.  For example, an economic growth rate of 5% indicates that the level of production has increased by 5% but does not tell us what the level of production is.

Correct.  The statement is indeed false.

It is important not to confuse levels with rates of change.  Economic growth gives us information about the change in the level of total production and not about the level of production.  For example, an economic growth rate of 5% indicates that the level of production has increased by 5% but does not tell us what the level of production is.

3. An economic growth rate of 10% implies that the total level of production of goods and services increased by 10%.

Correct.  The statement is indeed true.

When a country produces more goods and services from one period to the next, economic growth occurs. A 10% economic growth rate implies that the country produced 10% more goods and services compared to a previous period.

Incorrect.  The statement is true.

When a country produces more goods and services from one period to the next, economic growth occurs. A 10% economic growth rate implies that the country produced 10% more goods and services compared to a previous period.

4. If the economic growth rate of country A is 5% and that of country B is 10%, then we can conclude that the level of total output in country B is greater than that of country A.

Incorrect.  The statement is false.

Don’t confuse levels with rates of change.  It is possible that the level of total output for country B is R100 billion and the output for country A is R200 billion. In this case the increase in total production for country B is (10% x R100 billion) = R10 billion, and  for country A it is (5% x R200 billion) = R10 billion.

Correct.  The statement is indeed false.

Don’t confuse levels with rates of change.  It is possible that the level of total output for country B is R100 billion and the output for country A is R200 billion. In this case the increase in total production for country B is (10% x R100 billion) = R10 billion, and for country A it is (5% x R200 billion) = R10 billion.

5. If the total level of output in country A is greater than the total level of output in country B, a 5% economic growth rate will increase the total level of output for country B more than that for country A.

Correct.  The statement is indeed true.

Assume the level of output for country A is R200 billion and that for country B is R100 billion.  A 5% increase in total production for country A is 5% x R200 billion = R10 billion, and for country B a 5% increase is 5% x R100 billion = R5 billion.

Incorrect.  The statement is true.

Assume the level of output for country A is R200 billion and that for country B is R100 billion.  A 5% increase in total production for country A is 5% x R200 billion = R10 billion, and for country B a 5% increase is 5% x R100 billion = R5 billion.

6. If a 5% increase in the total production of goods and services leads to a greater increase in the total level of output for country A than country B, we can conclude that the total level of output is greater in country A than in country B.

Correct.  The statement is indeed true.

If  a 5% increase in total production for country A is  R10 billion and a 5% increase in total production for country B is R5 billion, it follows that the level of production for country A is greater than for country B.  In this case the level of output for country A is R200 billion, and for country B it is R100 billion.

Incorrect. The statement is true.

If  a 5% increase in total production for country A is  R10 billion and a 5% increase in total production for country B is R5 billion, it follows that the level of production for country A is greater than for country B.  In this case the level of output for country A is R200 billion and for country B it is R100 billion.

7. Economic growth is usually measured as the rate of change in …

Correct.

Since we are interested in the change in the total production of goods and services, real GDP, instead of nominal GDP, is used.

Incorrect.

Changes in nominal GDP reflect changes in both prices and the volume of goods and services; changes in real GDP exclude the impact of price changes.   Since we are interested in the change in the total production of goods and services, real GDP, instead of nominal GDP, is used.

8. An increase in real GDP always leads to an increase in real GDP per capita.

Incorrect.  The statement is false.

An increase in GDP only leads to an increase in real GDP per capita if the economic growth rate exceeds the population growth rate.

Correct.  The statement is indeed false.

An increase in GDP only leads to an increase in real GDP per capita if the economic growth rate exceeds the population growth rate since real GDP per capita is equal to real GDP divided by the population.