11 Economic growth Flashcards
Short-run economic growth
growth based on increased utilisation of unemployed resources
Long-run economic growth
growth based on increasing the potential output level of the economy
Determinants of short-run growth
- increase in AD or/and increase in SRAS
- called also “actual growth”
Determinants of long-run growth
- improvements arise from improvements in quantity of quality of the factors of production
Factors that would increase long-run growth
- increase in the labour force
- improvements in labour productivity
- capital investment
- new technology
- education
- government policy
Sustainable growth
economic growth that does not compromise the economy’s ability to grow in the future
Economic cycle
the repeated pattern go fluctuations in short-run economic growth and how it differs from the trend growth of an economy
Recession
two successive quarters of a year where a short-run economic growth is negative
Output gaps
the difference between actual growth and trend growth
Explanations of the economic cycle
- multiplier-accelerator effect
- inventory cycle
- asset price bubbles
- animal spirits
- herding
- excessive growth in credit
- economic shocks
Inventory cycle
changes in inventory levels held by businesses may lead to exaggerated increases or decreases in industrial output - contributing to economic growth
Asset price bubble
where a rise in assets’s price becomes self-fulfilling and the price rises beyond the level that normal demand and supply conditions would generate, eventually leading to sharp falls when its price when the bubble is burst
Herding
consumer and investor behaviour often moves in similar direction at the same time
Main three types of unemployment
- cyclical unemployment
- frictional unemployment
- structural unemployment
Cyclical unemployment
unemployment caused by insufficient aggregate demand within the economy
Frictional unemployment
unemployment resulting from ‘friction’ due to movements into and out of the job market i.e. occurs when people are between jobs
Structural unemployment
unemployment resulting from mismatches between the labour demand for differently skilled labour
Which unemployment is caused by demand-side?
cyclical unemployment
Which unemployment are caused by supply-side?
frictional and structural unemployment
Other types of unemployment
- voluntary unemployment
- involuntary unemployment
- real wage unemployment
Voluntary unemployment
where people are unwilling to accept a job at the going wage rate despite there being jobs available
Involuntary unemployment
where people are unable to find employment at the current market wage rate
Real wage unemployment
unemployment that exists when the real wage is not allowed to fall to the market clearing level where labour demand equals labour supply
The natural rate of unemployment
the rate of unemployment that consists of all voluntary structural and frictional unemployment
Causes of inflation
- demand-pull
- cost-push
Demand-pull inflation
inflation caused by excessively high levels of AD beyond that needed to generate full employment
Cost-push inflation
inflation the occurs due to rises in the cost of production incurred by firms
Commodity
a homogeneous product that is often uses as a basic input into production
