Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

MACRO 2.3 Economic performance > 2.3.1 Economic growth and the economic cycle > Flashcards

2.3.1 Economic growth and the economic cycle Flashcards

1
Q

SR econ growth

A

growth based on increased utilisation of unemplpoyed resources = increased overall output.
AKA actual growth
- measured by % change in GDP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

LR econ growth

A

comes from increases in LRAS, growth based on increasing the potential output level of econ.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

determinants of SR growth

A

increase in AD
increase in SRAS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Determinants of LR growth

Increases in labour supply

A
  • Increases in immigration
  • Increasing retirement age
  • Encouraging people to enter work force
  • Making it financially attractive to be out of work by: paying less benefits, increasing incentives to take up work.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Determinants of LR growth

Improvements in labour productivity

A
  • improving workforces skills
  • increases in training undertaken should boost growth.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Determinants of LR growth

capital investment

A
  • improving workforces skills
  • increases in training undertaken should boost growth.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Determinants of LR growth

new technology

A

= productivity improvements for capital equiptment.
= they raise ability of econ to produce more output with given capital stock.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Determinants of LR growth

education

A

improvements in schools + unis = improvements in worker productivity.
* occupational immobilty can be reduced by ensuring education prepares pupils for future.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Determinants of LR growth

gov policy

A

= through supply side policies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Benefits

A
  • higher living standards
  • eaiser to find jobs
  • improved social indicators
  • increased tax rev
  • reduced welfare expenditure
  • lower absolute poverty
  • greater international status
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Costs

A
  • increased inflation if SR rises to quickly
  • depletion of natural resources
  • possibly increases in equality
  • increased negative externalities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

sustainable growth definition

A

= econ growth that doesn’t comprimise the abilty to grow in the future.
= can be maintained in LR and doesn’t reply on non-renewable resources to generate.
* govs been encouraged to intervene and shift production towards this e.g. propsosed ban of petrol cars by 2050

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Economic cycle

definition

A

repeated pattern of flucuations in SR growth and how it differs from trend of growth in economy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Economic cycle

BOOM

A
  • SR growth above trend growth rate
  • consumer confidence and spending high, plus credit rising quickly.
  • business confidence = investment
  • low unemployment
  • gov finances more towards surplus
  • inflation rises
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Economic cycle

downturn

A
  • SR growth rate falls
  • consumers reduce consumption financed by borrowing
  • bussiness confidence + investment falls
  • unemployemnt stops falling
  • inflation likely to stop rising
  • tax rev may begin to fall
  • spending on imports falls
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Economic cycle

recession

A
  • econ growth = negative
  • consumer spending falls
  • business confidence low
  • unemployment rising
  • inflation falls, deflation possible
  • budget deficit likely to be high
  • CA balance may more into surplus due to low imports demand
17
Q

Economic cycle

recovery

A
  • ST growth positive but below trend growth
  • confidence for all begins to rise
  • inflation remainds low
  • unemployment likely to remain high but stop rising
  • CA balence liekly to remain in surplus.
18
Q

Economic cycle

output gaps definition

A

differnce between actual growth and trend growth

19
Q

explainations of econ cycle

Multiplier-acceleratormodel

A
  • may be caused by workings of multiplier and effects of accelerator.
  • Combined = ‘feed off’ each other - a rise in investment has multiplier effects on national income = more investment, = further multiplier effect on national income etc.
  • process can also work in the opposite direction.
  • result = small fluctuations in GDP can be magnified due to workings of multiplier and accelerator.
20
Q

explainations of econ cycle

inventory cycle

A
  • During downturns or recessions, decreased demand for output = businesses allow inventory levels to fall rather than producing more.
  • Production of output falls faster than fall in sales = exaggerating the effects of falling output on economic cycle.
  • in the recovery or boom stage, firms build up inventory again in anticipation of future sales.
  • adjustments effect rate of output.
21
Q

explainations of econ cycle

asset price levels

A
  • aka speculative bubble
  • occours = asset prices rise rapidly beyond normal S+D conditions predict.
  • Demand increases as people buy assets to sell later for profit.
  • Rising asset prices affect consumption and economic growth positively.
  • High prices of the asset become unsustainable, prompting people to sell and cash in profits
  • Initial selling triggers price drops and further selling, leading to a burst bubble
  • Rapid price falls have a negative wealth effect and impact consumption, amplifying economic downturns
22
Q

explainations of econ cycle

Animal spirits

A
  • Animal spirits (as described by Keynes) = collective expectations of businesses and consumers.
  • used to describe how investment and consumption are determined by the confidence felt by these groups.
  • If confidence = low, even with low IR the economy may remain in the recession phase as simply the result of it being expected to
    be there - i.e. it becomes self-fulfilling.
  • Hence, animal spirits influence the phase of the economic cycle an economy remains in, or moves to.
23
Q

explainations of econ cycle

Excessive growth in credit

A
  • Any slight downturn in economic growth can lead to sharply falling spending due to high proportions of household income being used
    to pay off debt and interest - with only small amounts of discretionary income left over.
  • Therefore, excessive eredit levels may mean sharp rises and sharp falls in consumer spending - magnifying the economic cycle.
24
Q

explainations of econ cycle

Herding

A
  • Herding occurs where people imitate other people’s behaviour, which can create speculative bubbles.
  • When people feel need to imitate others - say, by buying shares or by investing in property.
  • Collective decisions can influence level of spending thus actual phase of cucle.
25
Q

Causes of econ cycle

A
  • speculative bubbles
  • economic shocks
  • external cycles
  • changes in inventory
  • marxist explaination
  • multilpier/accelarator interaction
26
Q

Causes of econ cycle

Speculative bubbles

A

House prices + stockmarket share prices - prone to bubbles that then burst

27
Q

Causes of econ cycle

Economic shocks

A

from outside e.g. wars, supply and demand shocks

28
Q

Causes of econ cycle

External cycles

A
  • climate cycles
  • agricultural demands
  • weather cycles
    = input into EC
29
Q

Causes of econ cycle

changes in inventory

A

firms hold raw material stock = amplifies influctuations in EC, firms dont immediately respond = worsens

30
Q

Causes of econ cycle

marxist explainaion

A

see a cycle in which firms chase profit, overproduce to crisis point
weaker firms = out of business.
need to restructure and balence economy.

31
Q

Causes of econ cycle

mutliplier/accelarater interaction

A

investment effects income, can cause income and employment cycles

MACRO 2.3 Economic performance (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions