2.5 Economic Growth Flashcards
What will cause short-run economic growth to occur?
Changes to any of the components of aggregate demand
What causes long-run economic growth to occur?
Improvement to the quality or quantity of the factors of production
When does actual economic growth occur?
Increase in the quantity of goods/services produced in the economy in a given period of time
How is actual economic growth measured?
The percentage change in real GDP
What is the potential growth?
Increase in the productive potential of an economy (shift outward of PPF or LRAS
How does Export-led economic growth occur?
Occurs as a result of an increase in the sale of goods/services to foreign countries
What is an output gap?
The difference between the actual level of output and the maximum potential level of output
When does positive and negative output gaps occur?
Positive - real GDP is greater than the potential real GDP
Negative - real GDP is less than the potential real GDP
List the characteristics of a boom.
- increasing rates of economic growth
- decreasing unemployment
- reduction of negative output gap
- high confidence
- increasing rate of inflation
- improvement in government budget
List characteristics of a recession.
- two consecutive quarters (6 months) of negative economic growth
- increasing unemployment
- increasing negative output gap
- low confidence
- low inflation
- increase government spending
What is the main contributor to an improvement in the standards of living?
Economic growth
What are the benefits of economic growth on consumers?
- increased income, higher living standards
- higher incomes, eat more healthy, increase in life expectancy
- increase in subjective happiness
What are the benefits of economic growth on firms?
- increased income, increased demand, increased profits
- increased investment
What are the benefits of economic growth on government?
- Incomes rise, tax revenue rise
- reduced gov expenditure on benefits
