3.1 economic growth and the economic cycle

Question 1

what is short run economic growth

Answer 1

growth of real output resulting from using idle recourses, taking up slack in the economy

Question 2

what is long run economic growth

Answer 2

an increase in the economies potential level of real output, outward shift in the PPF curve

Question 3

what factors effect short run growth

Answer 3

positive changes in AD formular 
consumption 
investment 
government spending 
exports - imports

Question 4

what facts lead to long run economic growth

Answer 4

increase in the factors of production
an increase in capital for higher investment from firms
increase in the quality of the factors of production

Question 5

what are the benefits of economic growth

Answer 5

rising incomes - better living standards
better job prospects
less unemployment
affordability off goods and services
better assess to healthcare and education
higher tax revenue -spent on merit and public goods
higher international competitiveness

Question 6

what are the costs of economic growth

Answer 6

environmental concerns- negative externalities- pollution
unsustainable, using up finite recourses
wealth and income inequality
inflations rapid growth leading to inflationary pressure

Question 7

what is the economic cycle

Answer 7

the natural fluctuation of the economy between boom and recession

Question 8

what are the phases of the economic cycle

Answer 8

recession
recovery
boom
stagnation

Question 9

what is a recession

Answer 9

2 or more consecutive quarters of negative growth in real GDP

Question 10

what are the indicators or a recession

Answer 10

high unemployment
low AD
low consumer confidence, more saving less consuming

Question 11

what happens in the recovery phase

Answer 11

investment increases 
growth in real GDP 
unemployment falls due to increased AD 
income rise
increased competition and confidence

Question 12

what happens in the boom phase

Answer 12

workers working over time
wages rising 
more inward migration 
high AD
high demand for imports, like holidays abroad

Question 13

what is the stagnation phase

Answer 13

once the boom starts to become unsustainable people start to worry that asset and share prices are too hight, speculative bubbles
less investments
less demand for workers
confidence drops

Question 14

what can cause a recession

Answer 14

global financial crisis eg 2008
economic state of trade partners, if they are in recession their demand for brit exports may be low, decreasing AD
bad harvest abroad
natural disasters

Question 15

what are output gaps

Answer 15

when the level of actual real GDP in the economy is greater or lower than the trend level

Question 16

what is a positive output gap

Answer 16

when the level of real GDP in the economy is greater than the trend output level
the economy is temporarily producing beyond its productive potential, which is only possible for a short time due to workers and machines being over used

Question 17

what is a negative output gap

Answer 17

when the level of actual GDP is lower than the tend level of GDP, there is spare capacity, unemployment and low AD

Question 18

what are speculative bubbles

Answer 18

rapid increase in asset price above their actual value, eventually this is realised and the bubble will burst

Question 19

what are outside shocks

Answer 19

economic shocks that can effect AD and AS, eg the war in the Middle East causing oil shortages