2.5 Economic Growth Flashcards
Define the business cycle
Where GDP fluctuates around its underlying trend, following a regular pattern
Define the output gap
The difference between actual real GDP and potential real GDP
Define a negative output gap (recessionary gap)
When an economy is producing less than their productive potential
Define a positive output gap/inflationary gap
When an economy is producing more than their productive potential
Define spare capacity
When an economy is not using all its factors of production fully or efficiently (not at productive potential)
Define a recession
When GDP falls for two or more consecutive quarters
Define productivity
A measure of the efficiency of a factor or production
Define labour productivity
A measure of output per worker, or output per hour worked
Define capital productivity
A measure of output per unit of capital
Define total factor productivity
The average productivity of all factors, measured as the total output divided by the total amount of inputs used
Define investment
Spending by firms on capital goods (goods used to make other goods)
Define depreciation
The fall in the value of physical capital equipment over time as it is subject to aging and wear and tear
How is net investment calculated?
Gross investment - depreciation
Define human capital
The skills and expertise that contribute to a worker’s productivity
Define export-led growth
A strategy for achieving rapid economy growth through the promotion of export activity
Define sustainable development
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs
Define actual growth
An increase in GDP over time
How can actual growth be increased?
By increasing AD (factors) or SRAS (costs of production)
Define potential growth
The trend/average rate of growth over a time period
How can potential growth be increased?
By increasing LRAS (increasing productive potential)
How is an output gap calculated?
Actual GDP - Potential GDP
Name a thing seen in the economy during an inflationary gap, and whether it is short/long term
High wages as firms compete
Short-term
Name 3 things seen in the economy during a recessionary gap
High unemployment
low profit
Firms resist wage increases/employees reluctant to seek wage rises
Name 4 consequences of a negative output gap
Unemployment Real GDP below potential (bad living standards) Budget deficit Low wage growth Low business confidence (if widening)
