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Theme 2 > 2.5 Economic Growth > Flashcards

2.5 Economic Growth Flashcards

1
Q

What is potential economic growth?

A

An increase in the productive capacity of the economy

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2
Q

What is actual economic growth?

A

An increase in measured real GDP

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3
Q

What 4 factors affect economic growth?

A
  • the wealth effect
  • interest rates
  • govt spending
  • exchange rates
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4
Q

What 3 factors can influence potential economic growth?

A
  • improvements in quality and quantity of the good
  • increase in AS
  • increases in the PPF
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5
Q

What 4 issues are there that affect economic growth?

A
  • demography
  • increase in the participation of the work force
  • quality of investment
  • technology
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6
Q

What is export-led growth?

A

Strategy for achieving rapid growth through the promotion of exportation

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7
Q

What is an output gap?

A

The difference between actual real GDP and potential real GDP

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8
Q

What is a negative output gap?

A

When the economy is operating below the level of full employment, or actual real GDP is below the trend level

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9
Q

What is a positive output gap?

A

When the economy is operating above the full employment level

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10
Q

Consequences of a negative output gap?

A
  • unemployment

- idle capital

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11
Q

Consequences of a positive output gap?

A

-inflation // unsustainable

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12
Q

On a classical model of the AD and AS diagram, where would you find a negative output gap?

A

On the left of the vertical LRAS line

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13
Q

On a classical model of the AD and AS diagram, where would you find a positive output gap?

A

On the right of the vertical LRAS line

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14
Q

On the Keynesian model of the AD and AS diagram, where would you find a negative output gap?

A

Where the LRAS line begins to slope downwards

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15
Q

On the Keynesian model of the AD and AS diagram, where would you find a positive output gap?

A

On the vertical LRAS line

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16
Q

Where on the trade cycle would you find a recovery?

A

On the upward sloping bit

17
Q

Where on the trade cycle would you find a boom?

A

At the high point

18
Q

Where on trade cycle would you find a recession?

A

On the downward sloping bit

19
Q

Where on the trade cycle would you find a slump?

A

At the low point

20
Q

Characteristics of a boom?

A
  • high levels of spending
  • high business confidence
  • inflation
  • low umployment
21
Q

Characteristics of a recession?

A
  • spending levels fall
  • low con. and buss. confidence
  • deflation or disinflation
  • spare capacity increases
22
Q

Characteristics of a recovery?

A
  • weak spending

- increasing levels of business confidence

23
Q

Characteristics of a slump?

A
  • business failures
  • rising unemployment
  • deflation
24
Q

Benefits of economic growth to citizens?

A
  • income and wealth rise
  • standards of living rise
  • real incomes rise
  • employment opportunity
25
Q

Benefits of economic growth to firms?

A
  • more revenue and more profit
  • consumer spending increases
  • higher investment
26
Q

Evaluation point of benefits of economic growth to firms?

A

Firms making inferior goods are likely to suffer

27
Q

Benefits of economic growth to the government?

A
  • receive more in tax revenue
  • less govt spending on unemployment benefits
  • budget surplus
  • symbol of effective government
28
Q

Cost of economic growth to environment?

A
  • finite resources
  • unsustainable
  • expensive
  • pollution
29
Q

Cost of economic growth to the Balance of Payments?

A
  • increase level of imports

- firms making a profit have no need to export goods

30
Q

Evaluation point of cost of economic growth on the Balance of Payments?

A

-will not occur if growth has come from export led growth

31
Q

Cost of economic growth to inquality?

A
  • low skilled workers may not see benefits of growth
  • widening the income gap
  • increase of relative poverty
32
Q

How does a high level of economic growth lead to lower levels of unemployment?

A

High levels of economic growth leads to a high level of demand for goods and services, which increases the demand for labour.

33
Q

How does a high level of economic growth lead to an improved balance of payments?

A

High levels of economic growth means the productive capacity of the economy is rising. The means more goods can be exported. Exporting goods is an injection into the circular flow of income

34
Q

How does a high level of economic growth lead to an increase in Foreign Direct Investment?

A

High levels of economic growth can attract investment from multi national corporations. Due to high level of AD. Can create jobs.

Theme 2 (22 decks)

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