3.5: UK macroeconomy Flashcards
What do exports lead to?
Economic growth - improves net trade component of AD
What does long-run economic growth do?
Anyhting that causes LRAS to rise
Long-run economic growth cause by:
Increase in quantity of factors of production
Increase capital for higher investment for firms
Increase qualtity of factors of production
What does short-run economic growth do?
Anything that causes AD to increase
Short-run economic growth caused by:
Rises in:
Consumption
Govt spending
Investment
Exports
What is short-run economic growth measured in?
% change in real GDP
What are the two measures of economic growth?
Actual
Potential
What is actual economic growth?
% increase of GDP
Driven by rising GDP
What is potential economic growth?
How much the economy could grow
GDP if economy at full employment
Output gap
Difference between actual GDP and potential GDP
Positive output gap
Actaul GDP > potential GDP
Economy producing outside productive potential -> unsustainable as wokers paid overtime + machines over used -> causes inflationary pressure as wages and costs rise
Negative output gap
Actual GDP < potential GDP
Economy producing inside PPF -> will be unemploymen and demand-pull inflationary pressure will be low as resources + factors of production not being use
Business cycle
Recession
Recovery
Boom
Stagnation
Recession
Dangers of economic growth
Environment damage
Unsustainable
Wealth + income inequality
Inflation
Benefits of economic growth
Higher incomes -> higher standards of living
Better job prospects
Low unemployment
Affordability of goods/services
Better access to healthcare + education
Higher tax revenue
Higher international competitiveness
