31 Economic growth Flashcards

1
Q

Economic growth

A

Change in national output over time as measured by GDP

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2
Q

Policy objective of economic growth

A
  • government seek economic stability and a reduction in the fluctuations of actual economic growth around trend rate
  • often primary policy objective as it is an indicator of the health of the economy and performance of other key indicators such as inflation and efficacy of policy measures
  • government policy objectives from economic growth may differ depending on the stage in economic development
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3
Q

Stages of economic cycle

A

Boom: rate of actual economic growth exceeds the trend rate and the output gap is narrowed
Downturn: economic growth rates begin to fall and approach zero
Recession: two consecutive periods of negative economic growth
Recovery: economic growth becomes positive after a recession

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4
Q

Real GDP

A

Takes inflation into account when GDP is calculated

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5
Q

Nominal GDP

A

At current prices does not take inflation into account when calculating GDP

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6
Q

Short run econ growth

A
  • A change in demand side is caused by an increased component of AD
  • a change in factor input costs affects the supply side resulting in econ growth
  • real GDP increases for both
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7
Q

Long run econ growth

A

Caused by supply side policies that increase productive capacity of the economy
- the expansion of productivities potential is illustrated by the shift in long run aggregate supply and ull employment shifts to the right
- extension of aggregate demand

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8
Q

Causes of econ growth

A
  • short run econ growth is caused by shifts in aggregate demand or supply
  • change on the demand side are caused by changes in the components of AD of an injection or leakages from the circular flow of income
  • any alteration in macroeconomic policy measures, monetary and fiscal which will casue a change in aggregate demand
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9
Q

Benefits of economic growth

A
  • rise in average household incomes as indicated by GDP per capita
  • reduced unemployment through creation of job opportunities as more workers are needed to produce s higher level of output - higher derived demand for labour
  • rise in material standards of living as households are able to purchase products with higher income elasticity of demand
  • reduction in absolute poverty levels
  • improvements in public services, an increase in government taxation receipts that could increases government expenditure on merit goods such as healthcare
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10
Q

Costs of econ growth

A
  • demand-pull inflationary pressure as spare capacity is used up
  • rising income inequality as measured by the gini coefficient and Lorenz curve
  • relative poverty could rise
  • environ meant degradation through the divergence between MSC and MPC which hinders sustainable economic development
  • wealth concentration resulting in greater division between geographical areas the economy
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