2.1 economic growth

Question 1

how do we measure level of performance in the macroeconomy

Answer 1

economic growth, low unemployment, low inflation, fair distribution of wealth, competitive BoP position

Question 2

SR economic growth def.

Answer 2

an increase in the total value of all goods and services produced in an economy in a given time period ((short run economic growth - measured by GDP)

Question 3

LR economic growth def.

Answer 3

an increase in productive potential or capacity of an economy (shown by a right shift of lras or ppc)

Question 4

causes of sr economic growth

Answer 4

change in cost of raw materials, increase in ad

Question 5

causes of sr economic growth: change in cost of raw materials

Answer 5

sras curve shifts right

Question 6

causes of sr economic growth: increase in ad

Answer 6

ad curve shifts right, output increases and price increases

Question 7

causes of lr economic growth

Answer 7

change in quality or quantity of factor inputs

Question 8

lr economic growth - diagram

Answer 8

lras shifts right, yfe moves to yfe2 (higher productive potential - potential economic growth). if actual output increases too (ad and lras) = actual economic growth

Question 9

policy objective of economic growth

Answer 9

expanding the availability of resources to increase standard of living

Question 10

calculate economic growth rates

Answer 10

percentage change

Question 11

what do we use to measure total produced output

Answer 11

real and nominal measurements

Question 12

nominal value

Answer 12

value of an economic variable based on current prices taking no account of changing prices through time

Question 13

real value

Answer 13

value of an economic variable, taking into account changing prices through time

Question 14

real/nominal example

Answer 14

last year a tub of ice cream was £3 now its £3.30. volume of consumption not changed but spending has. real consumption still £3 but nominal value has increased to £3.30

Question 15

converting nominal measures to real

Answer 15

price index: a way of comparing the value of a variable with a base observation eg over time

Question 16

how to calculate price index

Answer 16

price index = (nominal/real) x 100

Question 17

how to calculate real value

Answer 17

(nominal/price index) x 100

Question 18

whats gdp

Answer 18

a measure of a countrys value of output usually after adjusting for changes in price level (real gdp) - equal to a countrys total income and expenditure

Question 19

whats nominal gdp

Answer 19

national output measured in terms of prices of the year in question

Question 20

whats real gdp

Answer 20

nominal gdp with the effects of inflation removed

Question 21

how to calculate real gdp

Answer 21

(nominal gdp figure/current year price index) x base year index (always 100)

Question 22

whats gni

Answer 22

gdp + net income from abroad (more helpful to measure standard of living)

Question 23

whats gdp per capita

Answer 23

average level of gdp per head of the population

Question 24

how to calculate gdp per capita

Answer 24

divide gdp by population (x1000 to convert billons to millions)

Question 25

problems with gdp to measure standard of living

Answer 25

gdp/gni per capita doesnt look at happiness, health, or freedom. distribution pf wealth is also not accounted for

Question 26

whats a recession

Answer 26

when actual growth (gdp) falls or is negative for 2 or more consecutive quarters

Question 27

whats the economic cycle

Answer 27

a phenomenon whereby gdp fluctuates around an underlying trend, following a regular pattern

Question 28

whats the trend rate of economic growth

Answer 28

the average sustainable rate of economic growth over a period of time. can be maintained without inflationary pressures

Question 29

what affects the trend rate of EG

Answer 29

SAME THINGS THAT AFFECT LRAS

Question 30

benefits of EG

Answer 30

firms make more profit, higher wages and employment, more job opportunities, more tax revenue, less gov spending on benefits, more investment, better fiscal position (less borrowing by the gov)

Question 31

costs of EG

Answer 31

income inequality, demand pull and cost push inflation, negative externalities from industrial expansion, uses up finite resources

Question 32

costs of a recession

Answer 32

firms may close down, less tax revenue, more gov spending on benefits, less investment

Question 33

benefits of a recession

Answer 33

some firms may benefit like discount retailers, firms may face up to inefficiencies so may benefit in the long run