42 : Economic Growth and Sustainability Flashcards
2 types of economic growth
- Actual EG - output increase due to greater use of existing resource
- Potential EG - increase in maximum output (rise in productive potential)
Define output gap
Difference between actual and potential ER
+ = Real GDP > potential GDP
- = Real GDP < potential GDP
State the phases of business cycle
Boom
Recession / Downturn
Trough
Recovery / Upturn
Define economic shock
An unexpected/ unpredictable event that affects the economy
What 2 ways can shocks be categorised
- Demand side / Supply side
- Positive / Negative
Give 2 supply side shocks from Covid 19
- fall in productivity due to disruspted economic supply chains, temporary business closure, increasing business backruptcies
- fall in business investment due to confidence loss
Positive demand side shocks caused by
- IR decrease
- Gov spending increase
- ER depreciate
- Consumer boom
- Increasing confidence
- Multiplier + accelerator effect
Negative supply side shocks caused by
- No tech advance
- Raw material price increase
- Natural disaster / Covid 19
- Wages increase/ business tax/ ER
Roles of Automatic Stabilisers
Offset fluctuations in economic activity
-reduce AD during boom
-increase AD during recession
Policy to promote economic growth
SR - expansionary fiscal/ monetary
LR - interventionist supply side / market based supply side
Example of interventionist supply side
Subsidies
Direct provision
Example of market based supply side
Lower tax
Reduce benefits
Privatisation/ deregulation
Disadvantage of EG policy - SR fiscal/ monetary
Demand pull inflation
Disadvantage of EG policy - LR supply side
cost
time lag
Define Inclusive Economic Growth
EG that is distributed fairly across society and creates opportunities for all
Impact of EG on equity/equality
Widening of income equality
-pay gap
-gig economy
-skilled labour higher demand
-new industries created may cause labour immobility
How to solve problems with pay gap?
-redistribution of income using progressive tax or transfer payment
How to solve problems with gig economy?
Trade union/ legislation (labour rights)
Anti discrimination legislation (no groups excluded from benefits)
Legislation against slavery or child labour (no exploitation of vulnerable groups)
How to solve problems with low skilled labour less demand?
Improve access to quality education
How to solve problems with labour immobility?
Improve transport or communication links (reduce regional difference in income)
Improve access to education
Define Sustainable Economic Growth
Economic growth that doesn’t threaten future generation’s ability to experience economic growth
How to achieve Sustainable economic growth
- Increase quality of growth (labour/ tech)
- Prevent exploitation (conserve) of natural resources
How to increase quality of economic growth
provide access to quality education, housing, healthcare
innovation/ tech advancement
How to conserve natural resources
subsidy cleaner sources of energy
plant tree
provide information
restrict consumption or production of certain product (eg plastic bag)
tax firms that create pollution
pollution permits
