2.1 Economic Growth Flashcards
Define economic growth
The expansion of the productive potential of the economy. It can be depicted by an outward shift in the PPF or an outward shift in a country’s LRAS curve
What is the governments economic growth macroeconomic objective
To have sustained and sustainable economic growth.
How is short term growth calculated and when
It is calculated annually by the percentage change in real national output
When does economic growth occur
When there is a rise in the value of Gross Domestic Product ( GDP )
What is GDP
It measures the value of goods and services produced in an economy.
What can economic growth lead to
Can lead to higher living standards and more employment opportunities
What is real GDP
The value of GDP adjusted for inflation
What is nominal GDP
The value of GDP without being adjusted for inflation
What is GDP per capita
It is the value of total GDP divided by the population of the country
What is the graph for the business cycle
What happens during recessions
The real output in the economy falls, and there is negative economic growth. Also governments may increase spending to try and stimulate the economy
What happens during periods of economic growth
Governments may receive more tax revenue since consumers will be spending more and earning more
What are the characteristics of a boom
High rates of economic growth
Near full employment
Demand-pull inflation
Consumers and firms have hugh confidence which leads to high rates of investment
What are the characteristics of a recession
Negative economic growth
Low inflation rates
Government budgets worsen due to more spending and lower tax revenues
Factors that cause economic growth
Increase in AD
Improving the labour force, with better quality and quanitity to increase productivity
Improved technology
What is actual growth
This is the short run growth and it id the percentage increase in a country’s real GDP. It is usually measured annually and is caused by increases in AD
What is potential growth
This is the long run expansion of the productive potential of an economy. It is caused by and increase in AS
How do you illustrate short run economic growth and explain the graph
A right shift in the AD curve shows short run economic growth. This is from AD1 to AD2. Negative economic growth is shown by AD1 to AD3
What causes a rise in economic growth to occur
Consumers and firms have higher confidence
Lower taxes give more disposable income
Depreciation in a currency will increase AD
How do you illustrate long run economic growth and explain the diagram
A right shift in the LRAS curve shows long run economic growth.
What are the costs of economic growth to consumers
If there is high inflation then inequality could increase
Likely to be higher demand-pull inflation due to higher consumer spending
Consumers have to spend more time and effort finding the best deal while prices are rising
What are the costs of economic growth to firms
They may have to keep changing their prices to meet inflation
What are the costs of economic growth to the government
They might increase spending on healthcare if the consumption of demerit goods increases
What are the costs of economic growth to current and future living standards
High levels of growth can lead to damage the environment in the long run due to increase negative externalities
