2.5 Economic Growth

Question 1

What causes economic growth?

Answer 1

Increase in the quality or quantity of one of the four factors of production

Question 2

What is an output gap?

Answer 2

Difference between the actual level of GDP and the estimated long-term value of GDP

Question 3

What is a positive output gap?

Answer 3

When GDP is higher than estimated

Question 4

What is a negative output gap?

Answer 4

When GDP is lower than estimated

Question 5

What is a trade cycle?

Answer 5

The periodic but irregular up and down movements in economic activity

Question 6

What are the 4 main phases in a trade cycle?

Answer 6

Boom
Downturn
Recession
Recovery

Question 7

What is hysteresis?

Answer 7

When past events affect future events

Question 8

What is the impact of economic growth on consumers?

Answer 8

Higher quality goods
Increased inequalities
Inflation?

Question 9

What are the impacts of economic growth on firms?

Answer 9

Business confidence will improve
Investment will increase
Opportunity for new firms

Question 10

What are the impacts of economic growth on the government?

Answer 10

Tax revenues will increase
Reduce the budget deficit