2.5 ECONOMIC GROWTH

Question 1

The Economic Cycle

Answer 1

Natural fluctuation of the economy between periods of expansion and contraction.

Question 2

Negative Output Gap

Answer 2

Real GDP is below the productive potential.

Question 3

Positive Output Gap

Answer 3

Real GDP is greater than productive potential.

Question 4

Economic Growth

Answer 4

• Growth is a sustained growth of real GDP over time
• Contributes to rising average living standards.
• Long run increase in a countries productive potential / productive capacity.

Question 5

Economic Welfare

Answer 5

• A broader measure of well-being (social + economic factors)
• Many aspects of well-being are not directly linked to material aspects.
• Welfare measure may include changing levels of inequality + median household incomes.

Question 6

Weakness Of GDP

Answer 6

• GDP tends to understate the national income per capita due to shadow economy.
• Excludes illegal activity such as drug production, prostitution and theft.

Question 7

Well Being

Answer 7

Multi Dimensional Concept

1- Real GDP per capita
2 - Real household spending per head
3 - Median household income
4 - Household net wealth
5 - Unemployment rate + Employment rate
6 - Financial Statistics

Question 8

Subjective Happiness

Answer 8

Factors that affect it:

• personality + genetics
• who we surround ourselves
• income + wealth
• health + leisure time
• education

Question 9

The Easterlin Paradox

Answer 9

• It concerns whether we are happier and more contented as our real living standards improve.
• Within a society, richer people tend to be happier than poor people.
• Richer societies tend not to be happier than the poor societies.