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GDP and Growth

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Economics Assignment 2 (1) Explain the meaning and the significance of the difference between the concepts of 'money' GDP (*1) and 'real' GDP (*2) as shown over these two decades of UK economic activity. Make use of any graphs for these monetary indicators (in ´┐Żbillion) that you may have decided to prepare. The word Gross domestic Product, also known as GDP, is defined as the market value of the final goods and services produced within a country in a year. There are three methods of measuring the GDP: The product method, which focus on the firms and their production, to sum up the value of all goods and services that they produced in the country. The income method, which focus on the incomes that earned by those involved in the production process, those incomes are salaries and wages, rent, interest and profit. The expenditure method, also known as the most common approach to measure the GDP, is to sum up the value of all the expenditure on the output. The calculation is consumption (C) + Investment (I) + Government spending (G) and (Exports (X) - Imports (M)). In addition, the three methods of measuring the GDP must carry out the same result, in other words, which means that the total value of the production, the total value of the incomes and the total value of the expenditure must be equal. ...read more.


In fact, the UK economy has experienced unsettled growth over the period of time as fluctuation can be seen in the graph. The fluctuation is known as the business cycle and it can be described by four phases: A peak is the upper point of a business cycle, where an expansion ends and a contraction begins. The peak occurred in 1988, when UK just had experienced a steady growth from 1984 (2.5%) to 1988 (5.2%) and began to decline in 1989 (2.2%). A contraction describes a slow down in the pace of economy activity, which occurred between 1989 (2.2%) and 1991 (-1.4). A trough is the lower point of a business cycle, where contraction ends and expansion begins. The trough occurred in 1991. An expansion describes a speedup in the pace of economic activity, which occurred between 1992 and 1994, from 0.2% to 4.3%. In addition, if a contraction is long, which the GDP is negative for two successive quarters, then it will be described as a recession. It occurred between 1980 - 1981 and 1991 - 1992. The diagram on the right is used to interpret the concept of the business cycle. As the business cycle and the economic growth is fluctuate. ...read more.


Also, as the change of the trend and the consumer's preference, firms might produce products with high technology functions, e.g. cars, mobile phones, etc, to satisfy the consumers' demand, and as a result it will increase the GDP output. The firms' competitiveness could be the other factors that might contribute to the rate of the economic growth. For example, in a competitive market, firms are using different strategic to make them better than their competitors. Some firms might do well and make profits, so they might offer better wages to their employees and as a result they have more to spend and consume more. Some firms might not do well, but then they might still want to stay in the market, money might be invest in the firms or specialists staff might be employed to improve the firm's performance. They are related to the outputs, price and the unemployment rate and I personally think they are all considered to be the factors that affect the economic growth. Finally the world's economy growth could also be one of the factors. It is because the other countries's economic growth will affect the exchange rate, exports and imports and investments, etc. They are considered to be the factors that contribute to the rate of the economic growth. ...read more.

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