2.5 Economic Growth Flashcards
1
Q
What are the 3 main cause of economic growth?
A
- Increase in quality or quantity of one of the 4 factors of production (would shift LRAS)
- Technological improvements
- Efficiency
2
Q
What is actual and potential growth?
A
- Actual: The goods and services that the economy actually produces
- Potential: The change in productive potential over time
3
Q
How can international trade help Economic Growth?
A
- Export-led growth (also helps balance of payments)
4
Q
What is an output gap? What are the 2 types?
A
- Measure between the difference between actual and potential output
- Positive: When actual growth is higher than potential
- Negative: When actual growth is lower than potential
5
Q
Why is the output gap difficult to measure? (2 reasons)
A
- Exact position of LRAS is unknown
- Initial GDP estimates are usually inaccurate
6
Q
What is the trade cycle?
A
- Represents recurring trends in economic growth, consisting of booms and recessions
7
Q
What are the 3 characteristics of a boom?
A
- National income is high
- Inflationary Pressures
- Increase in AD
8
Q
What are 3 characteristics of a recession?
A
- High unemployment
- Low inflationary pressures
- Fall in AD
9
Q
What is a recession?
A
- When real GDP falls in at least 2 successive quarters
