2.5 Economic Growth Flashcards
What is potential economic growth?
An increase in the productive capacity of the economy
What is actual economic growth?
An increase in measured real GDP
What 4 factors affect economic growth?
- the wealth effect
- interest rates
- govt spending
- exchange rates
What 3 factors can influence potential economic growth?
- improvements in quality and quantity of the good
- increase in AS
- increases in the PPF
What 4 issues are there that affect economic growth?
- demography
- increase in the participation of the work force
- quality of investment
- technology
What is export-led growth?
Strategy for achieving rapid growth through the promotion of exportation
What is an output gap?
The difference between actual real GDP and potential real GDP
What is a negative output gap?
When the economy is operating below the level of full employment, or actual real GDP is below the trend level
What is a positive output gap?
When the economy is operating above the full employment level
Consequences of a negative output gap?
- unemployment
- idle capital
Consequences of a positive output gap?
-inflation // unsustainable
On a classical model of the AD and AS diagram, where would you find a negative output gap?
On the left of the vertical LRAS line
On a classical model of the AD and AS diagram, where would you find a positive output gap?
On the right of the vertical LRAS line
On the Keynesian model of the AD and AS diagram, where would you find a negative output gap?
Where the LRAS line begins to slope downwards
On the Keynesian model of the AD and AS diagram, where would you find a positive output gap?
On the vertical LRAS line
Where on the trade cycle would you find a recovery?
On the upward sloping bit
Where on the trade cycle would you find a boom?
At the high point
Where on trade cycle would you find a recession?
On the downward sloping bit
Where on the trade cycle would you find a slump?
At the low point
Characteristics of a boom?
- high levels of spending
- high business confidence
- inflation
- low umployment
Characteristics of a recession?
- spending levels fall
- low con. and buss. confidence
- deflation or disinflation
- spare capacity increases
Characteristics of a recovery?
- weak spending
- increasing levels of business confidence
Characteristics of a slump?
- business failures
- rising unemployment
- deflation
Benefits of economic growth to citizens?
- income and wealth rise
- standards of living rise
- real incomes rise
- employment opportunity
