2.5 Economic Growth Flashcards
The business cycle
stage of economic growth that the economy is in
Characteristics of a boom
- High rates of economic growth
- low unemployment
- high consumer and business confidence
- high demand imports
Side effect - demand pull
recession
recession is defined as negative economic growth over two consecutive quarters
Characteristics of recession
- Negative economic growth
- Lots of spare capacity and negative output gaps
- high unemployment
- Low inflation rates
- Less confidence amongst consumers and firms, which leads to less spending and investment
- low demand for imports
Characteristics of recovery
- rising consumer and business confidence
- higher house prices
- more investment
Why are there fluctuations in the cycle
Shocks
- demand
- supply
Example of demand side shock
Increase in interest rate
Cut in gov spending
Exchange rate
Example of supply side shock
Natural disasters
Increase in raw material
Increase in tax
Change in imports
Benefit of economic growth on consumers
- higher disposable income
- wages increase
- higher employment
- better living standards
Benefit of economic growth on firms
- more profit
- increase investment
- confidence increase
Benefit of economic growth on government
Improve gov budget
- fewer ppl require welfare payments
- more people paying tax
costs of economic growth and the impact on consumers
- low and fixed income feel worse off
- high inflation
- increase inequality
- higher demand pull inflation
costs of economic growth and the impact on firms
Face menu cost
- change prices to meet inflation
costs of economic growth and the impact on government
increase their spending on healthcare if the consumption of demerit goods increases.
Judgment on economic growth
Should be sustainable and inclusive
