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economics > 2.1.1 Economic Growth > Flashcards

2.1.1 Economic Growth Flashcards

1
Q

define macroeconomics

A

issues, objectives and policies that affect the whole economy rather than individual markets. It considers aggregates of economic variables

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2
Q

name the seven possible macro economic objectives

A

low unemployment, strong and stable economic growth, low and stable inflation rate, healthy balance of payments, environmental sustainability, fair distribution of income, healthy and balanced government budget

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3
Q

explain the rationale behind stable and sustainable economic growth

A

higher living standards as higher average income

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4
Q

explain the rationale behind low and stable inflation

A

firms are incentivised to improve and grow, while consumers are encouraged to spend

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5
Q

explain the rationale behind a satisfactory balance of payments position

A

more money in than out, or even equal

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6
Q

explain the rationale behind low unemployment

A

more people in jobs, more tax revenue from income tax, more consumption as higher disposable incomes

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7
Q

define the primary sector

A

extraction and use of natural resources and materials from the land and sea

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8
Q

define the secondary sector

A

activities in an economy concerned with manufacturing and construction

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9
Q

define the tertiary sector

A

all activities in the economy in which a service is provided. includes sale of finished goods

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10
Q

define economic growth

A

the rate of change in a country’s output measured by changes in real GDP. It is the expansion of the productive potential of an economy

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11
Q

define short run economic growth

A

the actual annual percentage change in real national output (real GDP)

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12
Q

what is short run economic growth measured by

A

the annual change in real GDP (aka real national output or real national income)

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13
Q

define GDP

A

the measure of the total value of the quantity of finished goods and services provided in the economy within a year

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14
Q

define real GDP

A

the value of all goods and services produced within an economy in a year adjusted for inflation

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15
Q

define nominal GDP

A

the value of GDP without being adjusted for inflation

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16
Q

what is the formula for index number

A

(data value in year Y/base year value)*100

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17
Q

what is the formula for real value of GDP in current year (GDP deflator)

A

(nominal value in current year/ price index in current year) *100

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18
Q

define long-run economic growth

A

an increase in the potential productive capacity of the economy

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19
Q

what is long run economic growth measured by

A

the maximum potential output an economy could generate using the factors of production

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20
Q

what can lead to an increase in the productive potential of an economy

A

any changes in the quantity or quality of the factors of production in an economy

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21
Q

define capital

A

human made aids to production

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22
Q

define enterprise

A

where the other factors of production are organised to make goods and services

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23
Q

define land

A

all natural resources in an economy

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24
Q

define labour

A

all human resources which make up the workforce

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25
Q

how does investment in education and training improve productive potential

A

increases the quality of labour, higher skilled workforce can become more efficient and output per worker should rise

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26
Q

how does investment in new machinery and equipment improve productive potential

A

increases quantity of capital, more machinery results in higher output and therefore more production

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27
Q

how does investment in research and development of technology improve productive potential

A

increases quality of capital, improved machinery will be more efficient and result in greater productivity and production

28
Q

how does increased inward net migration improve productive potential

A

increases quantity of labour, a greater supply of labour, therefore more output can be generated

29
Q

how does reduced income tax and lower unemployment benefits improve productive potential

A

increases quantity of labour, there is more incentive to work and earn a higher income, so more output as more labour

30
Q

how does encouraging the start up and expansion of new businesses improve productive potential

A

increases quantity of enterprise, there are more new businesses, and more businesses expand, leading to greater output and ideas

31
Q

define GDP per capita

A

a measure of the average output per person in a country
total value of all goods and services produced in an economy over a period of time divided by the population

32
Q

why is GDP per capita useful

A

it is useful for understanding the average standard of living or income level within a given nation.
it also provides a useful way to compare the economic performance of different countries white considering their population sizes

33
Q

what is the formula for GDP per capita

A

Total GDP/Population

34
Q

define total national income

A

the value of all goods and services produced in an economy

35
Q

define real national income

A

the value of all goods and services produced in an economy adjusted for inflation

36
Q

define per capita income

A

the total income divided by the population

37
Q

define gross national income

A

the value of goods and services produced by a country over a period of time plus income earned by citizens operating outside the country (net overseas interest payments and dividends)

38
Q

what is subtracted from GDP for gross national income

A

what foreigners earn and send back home

39
Q

what is GNI affected by

A

income from businesses owned overseas and remittances sent home by foreign workers

40
Q

why is GNI sometimes used instead of GDP

A

the growing size of remittances, and it calculates income instead of output

41
Q

why may countries have a GNI higher than their GDP

A

small island nations (due to large inflow of foreign income)
countries with high remittances e.g India
countries receiving foreign aid

42
Q

define the trade cycle

A

variations in the level of productive capacity of an economy over time.

43
Q

what is “productive capacity”

A

maximum potential output using the available factors of production

44
Q

define a boom

A

a period of high levels of economic activity (high rate of real GDP)

45
Q

define a recession

A

the rate of economic growth starts to fall in a downturn. If real GDP falls for two consecutive quarters then this is a recession. a period of negative economic growth.

46
Q

define a slump

A

the bottom of the trade cycle which represents a period of serious economic decline (very low/negative economic growth)

47
Q

define a recovery

A

where there are signs that economic growth is starting to rise

48
Q

define purchasing power parity

A

converting one currency into another to buy the same amount of goods to compare living standards and cost of living between countries

49
Q

how could higher GDP lead to a more successful economy

A

higher GDP -> producing more -> high incomes -> more purchasing power -> better quality of life -> successful economy

50
Q

explain why inaccurate statistics is a limitation of using GDP to measure living standards

A

some countries are inefficient at collecting or calculating data, making comparisons less effective (particularly for developing economies) so GDP may appear lower than it actually is

51
Q

explain why the shadow economy is a limitation of using GDP to measure living standards

A

the shadow economy is not included in measurements. People work without declaring their income, so GDP is underestimated because these incomes aren’t taken into account.

52
Q

what percentage of the economy is hidden in UK and Sub saharan africa

A

7% UK
60% Sub-saharan Africa

53
Q

explain why transactions without a monetary value is a limitation of using GDP to measure living standards

A

a country’s output and therefore GDP is underestimated. e.g subsistence farmers in poorer countries and housework in the UK

54
Q

explain why income distribution is a limitation of using GDP to measure living standards

A

GDP does not show the distribution of income - poverty and inequality could be high

55
Q

explain why developing countries is a limitation of using GDP to measure living standards

A

developing countries may wish to achieve growth at the expense of health and safety so living standards are actually lower

56
Q

explain why the Easterlin paradox is a limitation of using GDP to measure living standards

A

GDP does not show the happiness and well-being of the population e.g developed countries often increase incomes at the expense of quality of life

57
Q

explain why charity/volunteer sector is a limitation of using GDP to measure living standards

A

GDP does not show activity in the charity/volunteer sector so could be underestimated

58
Q

give four reasons why GDP can be useful

A

easy for comparison over time
standard measure and well understood
internationally recognised and still possibly the best available measure for comparison
GDP per capita is useful as it indicated average incomes

59
Q

which six factors do the UN identify in the World Happiness Report

A

real GDP per capita
having someone to count on
freedom from corruption
healthy life expectancy
perceived freedom to make life choices
generosity

60
Q

how does the UK government research national wellbeing

A

Measuring National Wellbeing report

61
Q

what two questions did Easterlin pose

A

are richer people happier than poorer people in the same country?
if everyone in the same country becomes richer over time, do they all become happier?

62
Q

what is the Easterlin paradox

A

at a given time, richer people are on average happier than poorer people. However, over time, as countries and people become richer, they don’t become happier

63
Q

what is the “levelling off” for the Easterlin paradox

A

about £65,000 a year

64
Q

what is meant by subjective happiness

A

how someone feels about their life. this will differ from person to person, even those living similar lifestyles

65
Q

what are the likely impacts of a fall in real incomes on subjective happiness

A

consumers have less real income to spend on goods/services that affect their happiness
consumers may worry more about the state of their personal finances
consumers may worry about ability to continue paying mortgages/other debts

66
Q

ev points for a fall in real incomes affecting subjective happiness

A

other factors affect happiness beside real income e.g leisure time, environment etc (Layard)
rises in real income may have a different effect on happiness than falls in real income (Easterlin paradox)
may be increased borrowing to make up for falling real incomes allowing households to maintain living standards (Ev depends on how much/ability to pay)

67
Q

what is happiness economics and how has it come about

A

looks at how content individuals are with their life from a theoretical viewpoint. it has come about because standard measures of living standards do not take into account contentment

economics (18 decks)

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