2) Economic Growth 2 -MB Flashcards
economic history of: (most recent recessions)
2020, 2008-9, 1991, 1980-81, 1974-75
2020 - Covid
2008-9 - Financial crisis/credit crunch
1991 - Interest rates went up to balance high inflation
1980-81 - Oil Crisis, price of oil went up
1974-75 - Oil Crisis
define gross national income (GNI)
GDP plus net income from abroad
define seasonal adjustment
a process by which seasonal fluctuations in a variable are smoothed to reveal the underlying trend
define GDP per capita
the average level of GDP per head of population
define productivity
measure of the efficiency of a factor of production
define labour productivity
measure of output per worker, or output per hour worked
define capital productivity
measure of output per unit of capital
define total factor productivity
the average productivity of all factors, measured as the total output divided by the total amount of inputs used
define human capital
the stock of skills and expertise that contribute to a worker’s productivity, which can be increased through education and training
define the economic cycle
a phenomenon whereby GDP fluctuate around its underlying trend, following a regular pattern
define a recession
a situation in which an economy’s real GDP falls in two consecutive quarters
define a quarter
a quarter of a year i.e. 3 months
what is the value of economic output measured by?
by the prices of goods and services
what are measurements of nominal values?
measurements made using actual prices at the time a transaction takes place
what do nominal measurements do?
when prices rise, nominal measurements overstate the extent to which an economic variable is increasing
how do you measure economic growth?
economists look at real values - values having removed the effects of price changes
what is indexing?
it’s taking a bad year to allow easy comparisons to that year
what does economic growth tell us?
tells us about the RATE of change of GDP over time
what does GDP per capita tell us？
tells us about the LEVEL of GDP per person
what happens if the population of a country is increasing while GDP also increases?
the underlying change in GDP per capita can be obscured - and so can change in the standard of living
how can you measure the value of a good?
you measure the value by looking at the price
examples of economic output:
hospitality in restaurants, haircuts, banking services, trains, taxis
define rate
how things are changing compared to before
define level
the state compared to before
how do you work out price index?
nominal GDP/ real GDP X 100 = price index
how do you work out percentage change/ economic growth rate?
(new value/old value -1) X 100
how do you work out GDP per capita?
GDP per capita = GDP/population
makes sure values are all in billions/millions/thousands
When is short run economic growth possible?
It’s possible if the economy is below full employment
How is short run economic growth shown on a PPC diagram?
Is a movement to the PPC from the position within it
What can short run economic growth be caused by?
- an increase in AD which in turn, is caused by an increase in components of AD (C,I,G (X-M))
- an increase in short run AS
- only an increase in investment also increases long run economic growth
What is long run economic growth caused by?
- it’s caused by an increase in the quantity of a factor of production
- it’s caused by an increase in the quality of a factor of production; an improvement in its productivity
How can you achieve long run economic growth through Capital?
Investment in productive manufactured resources, capital, increases potential economic output and therefore long run economic growth
How can you achieve long run economic growth through Technology?
Improved technology improves the quality and quantity of economic period and therefore long run economic growth
How can you achieve long run economic growth through Efficiency?
An increase in productivity (Labour productivity, capital productivity, total factor productivity) raise aggregate supply and the potential output of an economy, and therefore long run economic growth
How can you achieve long run economic growth through Labour?
Migration can increase the size of the Labour force, and education and training (improving human capital) can improve the productivity of workers. Furthermore, education and healthcare, and their associated externalities, improve labour productivity and therefore long run economic growth
How does economic growth lead to increased living standards?
Economic growth reflects rising output, perhaps due to increasing demand. Some firms will hire more workers, increasing employment. This increases incomes and living standards for the newly employed. Furthermore, others are incentivised to increase training for workers to improve their human capital and thus their productivity. This means that can then afford to increase workers’ pay, leading to increased living standards
Why does a recession decrease living standards?
Recession reflects falling output, perhaps due to falling demand. Some firms will lay off workers, increasing unemployment. This reduces incomes and living standards for the unemployed
What are the 2 consequences of economic growth?
1) Economic growth
2) Recession
Economic growth evaluation
Improve living standards if the increased GDP is greater proportionally than population growth. Furthermore, living standards are only improved if increased productivity is shared across the working population and not concentrated in the hands of the wealthy or entrepreneurs
Recession Evaluation
A longer deeper recession leads to more unemployment, and for longer, reducing living standards to a larger extent
What are the benefits of economic growth?
Improved living standards
Why are improved living standards good?
Along with higher pay improving living standards, economic growth can lead to a greater ability of a country to afford improvements to the environment, and the ability for its workers to afford more leisure time, better education, and higher quality healthcare
What are the disadvantages of competition policy?
Exploiting natural resources may lead to pollution and/or habitat destruction as a cost of improved economic output. Pollution reduces quality of life as air pollution leads to reduced health outcomes, and environmental blight reduces morale
Judgements, why do we care about economic growth?
Of all the governments objectives, economic growth is the most important as, fundamentally, it is the main way we measure how the living standards of the country’s population is changing - and hopefully improving
