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Economics > 3. Economic Issues - Economic Growth > Flashcards

3. Economic Issues - Economic Growth Flashcards

1
Q

Economic Growth refers to…

A

an increase in a country’s productive capacity, as measured by an increase in real GDP

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2
Q

Real GDP is…

A

an increase in national output adjusted for inflation.

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3
Q

Circular flow of income (see note word doc.)

A

…

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4
Q

Y (disposable income) = …

A

C (consumption) + S (savings)

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5
Q

MPS (marginal propensity to save) = …

A

ΔY(change in income) / ΔS (divided by change in savings)

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6
Q

Aggregate demand (AD) = …

A

aggregate supply (AS) (equilibrium)

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7
Q

S (savings) + T (taxes) + M (imports) = …

A

I (investments) + G (government spending) + X (exports)

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8
Q

C (total consumption) = …

A

Co+cY (total consumption = autonomous consumption + MPC x Y) Consumption Function

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9
Q

Y (total income) = …

A

= C + I + (G-T) + (X-T) (Y = total income, C = consumption expenditure; G = government expenditure; I = investment expenditure, X = exports and M = imports)

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10
Q

I, G & X = …

A

Io, Go & Xo (they are autonomous)

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11
Q

M = …

A

M = Mo + mY (m is the marginal propensity to spend on imports)

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12
Q

MPC + MPS & APC + APS = …

A

1

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13
Q

Simple multiplier (k) = …

A

1 / 1 - MPC or k = 1 / MPS

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14
Q

Relationship between MPC, MPS & multiplier

A
  1. If the MPC is larger, then the MPS must be smaller. As a result, the multiplier is larger
  2. If the MPC is smaller, then the MPS must be larger. As a result, the multiplier is smaller
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15
Q

Measurement of economic growth formula (Real GDP)

A

generally measured in the CHANGES in real GDP. (Nominal GDP x 100/CPI)

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16
Q

Calculating economic growth (Growth Rate of Real GDP)

A

(Current GDP - Previous GDP) / Previous GDP x 100

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17
Q

Sources of economic growth

A

Stems from the main sources of aggregate demand. (C + I + G + X – M)

18
Q

Consumption spending (C) is.. (influence)

A

mainly influenced by expendable income and consumer confidence. These factors are influenced by the level of taxation, wages and interest rates.

19
Q

Investment spending (I) is… (influence)

A

investment spending by firms is influenced by profits, interest rates, taxation and expectations about the economy.

20
Q

Govt. Spending (G) is… (influence)

A

largely influenced by amount of tax revenue, budget priorities and state of the economy.

21
Q

Effect of economic growth on GDP per capita and living standards

A

Increased use of resources and production possibility increases incomes. Higher incomes allows greater purchasing power and ability to improve standards.

22
Q

Effect of economic growth on Savings

A

Higher economic growth encourages higher levels of savings. Increased incomes allows private individuals to reduce debt and save.

23
Q

Effect of economic growth on productivity and technology

A

EG often arises from increases in productivity and efficiency. Efficiency gains can be made by technological progress (cost reducing technology) or increases to labour productivity.

24
Q

Effect of economic growth on Employment

A

increases employment and reducing unemployment. Encourages higher labour force participation.

25
Q

Effect of economic growth on Business investment

A

Higher consumption achieved through EG can greatly encourage businesses to expand

26
Q

Effect of economic growth on Exports

A

Economic growth leads to increased output, leading to higher exports. Export income can be used to fund imports.

27
Q

Cost of economic growth in Environment

A

pursuing higher economic growth can lead to damage to the environment.

28
Q

Cost of economic growth in structural unemployment

A

Technological change = structural unemployment. Governments will need to increase spending on retraining and education.

29
Q

Cost of economic growth in Consumerism and Materialism

A

adversely affects traditional and family values

30
Q

Cost of economic growth in income inequality

A

occurs if the benefits of economic growth do not “trickle down” to the lower and middle classes.

31
Q

Cost of economic growth on inflation

A

Higher demand for limited resources leads to DEMAND-PULL inflation. Can also lead to increased costs for businesses and cause COST-PUSH inflation. Increased spending on imports could lead to a deficit on the current account.

32
Q

Increase in Agg. Supply occurs as a result of economic growth because…

A

In the long run, economic growth is heavily impacted by a country’s PRODUCTIVE CAPACITY.

33
Q

Aggregate supply (AS) is… (also what does a shift in the right mean)

A

the total output in the economy. A shift to the right in the AS represents an increase in the Total Output.

34
Q

When AS=AD, equilibrium is achieved. If AD increases and AS doesnt change…

A

prices will increase (inflation). This will restrict future growth.

35
Q

Types of efficiency

A

Technical / Allocative / Dynamic

36
Q

Technical (productive) Efficiency

A

when businesses produce output using the least
cost combination of resources. In microeconomics, this means a business has
achieved technical optimum. (economies of scale)

37
Q

Allocative efficiency

A

when firms change prices to reflect the marginal cost of production so that prices reflect consumer preferences.

38
Q

Dynamic efficiency

A

when firms adapt to changing economic conditions by using cost-reducing technology.

39
Q

Trends in labour productivity

A

Australian growth in GDP per capita has risen due to gains in labour productivity. This was above 2% up to the early 2000s but has since declined to between 0.5 and 1%.

40
Q

Labour productivity can be influenced by…

A
  • Expenditure on research and development
  • The use of e-commerce
  • The quality of labour (education, skills and training)
41
Q

Policies to promote economic growth

A

Monetary, fiscal, microeconomic reform.

Economics (9 decks)

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