2.1- economic growth Flashcards
What is economic growth
An increase in GDP
Increase in the value of national output
Methods of calculating GDP
Output approach
Income approach
Expenditure approach
Output approach
Value of final goods and services produced in each sector within the year
No double counting
Income approach
Income received by people and firms involved in the production of g+s
Ignores transfer payments
Expenditure approach
All money spent buying the years output
Include X - M
SR economic growth
Increases in AD
Increases in SRAS
LR economic growth
Increases in LRAS (increasing the productive capacity (Yf) of an economy)
Increase in quantity / quality of resources
SR economic growth causes
Higher real wages
Tax cuts
Rise in demand for exports
LR economic growth causes
Rising birth rate
Discovery of raw materials
Improved technology
SR + LR economic growth causes
Improvement in infrastructure:
(SR - G) (LR- investment)
Increases inward migration:
(SR- C) (LR- productivity in work)
Gov spending on education:
(SR- G) (LR- skilled workers=productive)
Investment rises:
(SR- I) (LR- more capital equipment)
What does economic growth enable
Increased living standards
Improved tax revenue
Increased employment
Stages of economic cycle
Boom
Slowdown
Recession
Recovery
Boom
Rate of economic growth is greater than potential economic growth
Positive output gap
Slowdown
Rate of economic growth begins to fall - approaches 0
Recession
Rate of economic growth is negative
Real GDP falls
Recovery
Economic growth returns positive
Real GDP
A measure of the total value of all G+S produced in an economy ADJUSTED FOR INFLATION
Nominal GDP
A measure of the total value of all G+S produced in an economy AT CURRENT PRICES
Economic Growth Rates
% change in value of G+S produced in an economy at a given time compared to an earlier period
Consequences of economic growth
Fall in unemployment (SR+LR)
Rise in inflation (SR)
Rise in real output (SR)
Fall in the PL (LR)
