2.5 Economic growth Flashcards
What factors cause economic growth
- Investment (Capital and Human)
- Population growth
- Government policy
What is actual growth
Increase in real GDP over time
What is potential growth
Increase in an economy’s capacity to produce goods and services
What is the difference between actual growth and potential growth
Potential growth = long term (supply)
Actual growth = short term (demand)
what is the importance of international trade for export-led economic growth
- Job Creation
- Lower costs higher efficiency
- Increased production and GDP
What is a positive output gap
Actual GDP exceeds potential GDP
What is a negative output gap
Actual GDP is below potential GDP
What are the difficulties in measuring output gaps
- Challenges in assessing the economy’s full capacity.
- Shifts in the economy can make past data less relevant.
- Out of date data
Whats a boom
High growth, low unemployment, potential inflation.
Whats a bust
Negative growth, rising unemployment, low inflation
Whats a recovery
Returning growth, decreasing unemployment.
Whats a slump
Prolonged low growth or stagnation.
What is the characteristics of a boom
- High consumer confidence
- Increased investment
- Low unemployment
- Increased inflation and interest rates
Characteristics of a bust
- Decreased consumer confidence
- Unemployment rises
- Tax revenue decrease
Benefits of economic growth on consumers
- Higher incomes and living standards
- Low unemployment
- Increased consumer confidence
Costs of economic growth on consumers
- Inflation risk
- Income inequality
Benefit of economic growth of firms
- Less cost more efficiency
- Increased investment
- Higher profts
Costs of economic growth on firms
- Rising production costs
- Increased competition
- Over expansion risks
Benefits of economic growth on governments
- Higher tax revenues
- Low welfare spending
- More public investment
Costs of economic growth on governments
- Environmental concerns
- Risk of inflation
Benefits of economic growth on current and future living standards
- Better public services
- Technological advances
- Higher employment levels
Costs of economic growth on current and future living standards
- Resource depletion
- Job displacement
- Pollution
