2.5 economic growth 2.5.3 Flashcards
what is an economic or business cycle?
an economic cycle refers to the fluctuation of economic activity in an economy overtime.
involves alternating periods of expansion and contraction and other economic indicators
what does an economic cycle look like graph?
x-axis is time in years
y-axis is real gdp
upwards line is trend growth
wiggly line is actual growth
give a simple explanation of economic cycle graph movement?
starts with growth then boom then slowdown then recession then recovery
what is a boom and state the characteristics?
a boom is a period when the percentage of growth of real GDP is fast and high and where there is a positive output gap
characteristics
unemployment low
high confidences
high everything basically
high tax to control inflation
imports high
high demand
what is a recovery and state the characteristics?
recovery happens after a recession when real GDP starts to increase
characteristics
rising confidence
loose policy
higher investment and house prices
what is a recession and state characteristics?
its a period of 2 quarters in an economy when there is a fall in aggregate output
characteristics
ad down
sharp fall in investment and confidence
low house prices
policy changes that are looser
disinflation
imports low
what cause fluctuations in economic cycle?
demand shocks like high interest rates
supply shocks like natural disasters
what is depression in an economic cycle?
its when there is prolonged downturn in the economy where nations GDP falls by 10 percent
What is economic scarring?
It’s refers to the medium-long term damages to the economy following severe economic shock leads to recession
What is economic growth?
Economic growth is an increase in real GDP in an economy in a year caused by an increase in AD or increase in LRAS
What is actual growth?
What does it lead to
Actual growth is short run growth and refers to the yearly increase in real gdp known as AD.
It leads to usage of spare capacity to increase real gdp causing inflation.
It’s determined by demand side factors
What is potential growth?
What does it lead to and how can it be affected?
Long run growth is an increase in lras meaning the increase in the productive capacity of the economy.
Lead to prices decreasing and real gdp increasing.
Affected by supply side lras factors
What are the features of export led growth?
Specialisation: countries that specialise in producing g/s which they have advantage can produce it more cheaper
Creates jobs
Technology transfer
What are the risks of export led growth?
Vulnerable to external shocks
Dependance on oil minerals etc
Lack of diversification
What are the advantages of economic growth for consumers firms gov and life quality?
Higher disposable income
Higher profits for firms
High employment
High Gov tax revenues
Improved life quality for consumers
