2- Economic Growth Flashcards
What are the 4 economic objectives?
- economic growth
- price stability (inflation)
- minimising unemployment
- stable balance of payments on current accounts
Give examples of when the governments can influence the economy to achieve economic aims?
- when economic growth is low and unemployment is high, government should increase its own spending to boost the economy
- if inflation was too high, government should cut its spending in order to reduce demand so that prices fall
Define GDP is?
A country’s GDP is the monetary value of the total number of finished goods and services produced in the economy within a given period
Define what nominal GDP is?
Nominal GDP measures the value of GDP before inflation has been accounted for .
BUT if prices rise by 5% and nominal GDP rises by 5%, the value of goods and services has stayed the same
Define real GDP?
Real GDP
- nominal GDP adjusted to eliminate changes caused by orice changes (inflation)
Define economic growth?
Economic growth is the percentage increase in productive capacity of an economy. Can be SR and LR
What is economic growth measured in?
In theory, growth measures the increase in productive capacity of an economy as shown in PPF. However this cannot be measured precisely, so economists use %change in GDP over a period of time (usually a year) to measure economic growth
Define short run economic growth?
SR economic growth
- the actual annual percentage change in real national output.
Arises from factors that shift SRAS to right and therefore lead to macro equilibrium at a higher level of real GDP
Define Long run Economic Growth?
LR Economic growth-
- An increase in the potential productive capacity of the economy
In LR m, government can try to increase the PPF and LRAS by improving the UK’s Productivity. This will help LR economic growth, and as AS increases, it should help keep prices low
How does economic growth conflict with other objectives?
If AD increases…
It increases economic growth and leads to higher employment
BUT
Increase inflation and worsens balance of payments
Define economic cycle?
Economic cycle
- variations in the level of productive capacity of an economy over time
Aka when the actual Output (GDP) tends to fluctuante though u can go years without a phase
Define productive capacity?
Productive capacity
- the maximum amount of goods and services that we can produce with the resources we have available
What is economic growth a government target?
Economic growth is a government target because high real GDP means more wants are satisfied and the population has higher living standards.
What are the possible problems that need to be considered with economic growth?
The problems include:
- what affect does growth have on environmental factors such as pollutions and congestion?
- is growth sustainable or are scarce resources being used up?
- is growth leading to greater inequality of income and wealth?
Define the boom phase?
Boom is where GDP reaches its maximum output before a decline
