This document outlines the key topics in Chapter 3 of an Economics course, which focuses on national economic performance and growth. It discusses macroeconomics and how Gross Domestic Product is used to measure the total output and performance of a national economy. The chapter also examines the factors that influence GDP, including consumption, investment, government spending, and net exports. Additionally, it explores the concepts of economic growth, the flow of income in an economy, and the relationship between economic growth and overall welfare. While GDP is an indicator of growth, higher GDP does not always correlate with greater welfare, as other quality of life factors must also be considered.

1. ECONOMICS

2. COURSE SCHEDULE
 CHAPTER 1: SUBJECT & AIM of ECONOMICS
 CHAPTER 2: MARKET MECHANISM: DEMAND – SUPPLY and
PRICE MAKING
 CHAPTER 3: ECONOMIC GROWTH – NATIONAL ECONOMIC
PERFORMANCE

3. Chapter 3: Economic Growth –
National Performance

4. National Economic Performance
Collins Concise Dictionary definition of
Macroeconomics:
Macroeconomics is the branch of economics
concerned with aggregates, such as national
income, consumption, and investment.

5. National Economic Performance
Macroeconomics: deals with the performance,
structure, behavior, and decision-making of
a whole economy in a country and tries to
explain the changes in and relations between
unemployment, national income, rate of
growth, gross domestic product, inflation and
price levels.

6. National Economic Performance
To measure the national economic performance,
economics most commonly uses the Gross
Domestic Product.
A country’s GDP is the value of all the final
goods that are produced by its population in a
given year. It is a measure of an economy’s total
output.

7. National Economic Performance
 Increase in I, G, C, NX leads to an increase in
GDP
 Decrease in I, G, C, NX leads to a decrease in
GDP
These upward and downward movements in GDP
show the business cycle of a nation’s economy.

8. National Economic Performance
GDP = C + G + I + (EX – IM)
«C» shows consumer spending in a nation’s economy
«G» is the sum of government spending
«I» is the sum of all the country's businesses spending on
capital
«EX – IM = Net Export» is the nation's total net exports,
calculated as total exports minus total imports.

9. National Economic Performance
Gacsályi-Meyer-Misz-Simonits: Közgazdaságtan II. Makroökonómia (Nemzeti Tankönyvkiadó 2005.)
Gacsályi-Meyer-Misz-Simonits: Economics II. Macroeconomics (National Textbook Publisher
2005.) - Hungary

10. Flow of Income
Flow of income is the circulation of income
between producers (firms) and consumers
(households).

11. Simple Income Flow
 Factors of production: capital, land, labour
firmsHouseholds
Consumer Expenditure
Wages, rent, dividends

12. Income Flow in a More Complex
and Realistic Economy
S + T + M = I + G + X
Savings + Tax + Import  Leakages
Investment + Government Spending + Export  Injections

13. Economic Growth
Economic growth is the increase of an economy’s total
production in a period of time and measured by GDP.

14. Economic Growth
If you were to line up countries according to GDP per
capita today, you would find two clusters: one poor, the
other rich.
There are middle – income nations spread between these
two extremes.

15. Did you know that?
During the past four decades, real per capita GDP has
grown at an average annual rate of 2.4% in rich
countries whereas it has grown at only 1.8% in poor
countries.
USA
Africa
High GDP Low GDP
China Brazil Venezuela

16. Economic Growth
There is not a single force behind economic growth.
The accumulation of manufactured capital, human
capital, and the production, diffusion, and use of new
scientific and technological ideas go together, each
contributing positively to the contributions of the others.

17. Economic Welfare
Economic Welfare shows the level of living standards
of citizens in an economy.
There are many different determinants of welfare in a
country such as education, democracy, culture,
employment, wage levels, social insurance, healthcare
etc.

18. Economic Growth and Welfare
Does economic growth mean welfare?
GDP is an important indicator to measure growth.
Although GDP is often said to measure wealth, it does
not so. GDP is a flow whereas wealth is a stock.
We can not say that an upward economic growth
always leads to increasing welfare.

19. Economic Growth vs Welfare
The living standards in France and United States in
terms of GDP.
 In 2000 GDP of France is just 70 percent of U.S
value.
 Consumption per person in France only 66 percent of
U.S
So what about welfare in France and U.S?

20. Economic Growth vs Welfare
 There are other indicators that impact welfare levels such as life
expectancy, leisure, working hours.
 So for example, in 2000 France were seen to have better welfare
than the US due to lower levels of inequality and higher levels of
leisure. Just because a country has a high GDP does not mean
that their citizens have good welfare.

21. Economic Growth vs Welfare
"Higher life expectancy, lower inequality, and higher
leisure each add more than 10 percentage points to
French welfare in terms of equivalent consumption.
The gap in GDP per person is almost completely
eliminated by incorporating life expectancy, leisure,
and inequality."
Charles I. Jones Peter J. Klenow
Stanford University and NBER Stanford GSB and NBER