3.3 Macroeconomic Objectives — Economic Growth Flashcards
What is economic growth
Refers to an increase in real GDP over a period of time
How to calculate economic growth from a set of data
What is short term growth vs long term growth
Short term growth takes place over short period of time while long term growth needs a long time to take effect
In AD-AS model economic growth results of:
- increases in AD (short term growth)
- increases in short run AS (short term growth)
- increases in long run AS (long term growth)
Relationship between short/long run growth and business cycle
Short-term growth caused by mainly increases in AD - expansion of real GDP in business cycle
Long term growth - rightward shift of LRAS - shows increases in potential output corresponds to long term growth trend on business cycle
Short term growth on ppc model
Causes an increase in actual output caused by reductions in unemployment and productive inefficiency
Long term growth on ppc model
Growth due to increase in production possibilities caused bu increases in resource quantities or improvements in resource quality
Consequences of economic growth
Impact on living standards
Impact on environment
Impact on income distribution
Explain impact of economic growth on living standards
as AD increases, while prices remain stable, the average person’s real wealth will increase, and they will be able to afford more consumer goods and luxuries
If real GDP increases faster then population then there is an increase in GDP per capita, greater potential for people to increase their consumption of goods and services, improve thrift standards of living
Explain impact of economic growth on the environment
Rapid growth often leads to unsustainable resource use
Explain impact of economic growth on income distribution
May cause distribution of income more or less equal (no clear relationship)
