2.5 Economic Growth

Question 1

What causes Economic growth?

Answer 1

An increase in the quality or quantity of the factors of production, or their allocation is being done more efficiently.

Question 2

What is the difference between actual and potential growth?

Answer 2

Actual growth is and increase in the percentage change of GDP, potential growth is the increase in the productive potential of an economy.

Question 3

What is an output gap?

Answer 3

This is the difference between actual and forecasted GDP.

Question 4

What are the four main phases of the trade cycle?

Answer 4

Boom, Recession (Slump), Recovery, Downturn

Question 5

What are characteristics of economic booms?

Answer 5

High Investment, consumption, confidence, National Income, and inflationary pressures

Question 6

What is hysteresis?

Answer 6

This is when an economy doesn’t return back to its trend line over a long period of time, financial crisis took a long time to recover.