4.2.3 Economic Performance Flashcards
What is short run growth caused by?
Increases in AD
What is long run growth caused by?
Increases in AS
When does a positive output gap occur?
When demand shifts outwards
What are characteristics of a boom?
- High rates of economic growth
- positive output gaps
- full employment
- demand-pull inflation
What are characteristics of a recession?
- Negative economic growth
- Negative output gaps and spare capacity
- demand-deficient unemployment
What is an asset price bubble?
When the price of an asset which is predicted to rise significantly suddenly falls and causes investors to panic and try and sell their assets
What is herding?
Reacting to the behaviour of other economic agents rather than the market
What is cyclical unemployment caused by?
A lack of demand for goods and services
Or
Increases in productivity meaning fewer workers are needed
What are some consequences of unemployment?
- Less disposable income means consumers’ living standards fall
- Loss of skills
- Negative externalities such as crime
- opportunity cost to society (loss of goods and services)
- Government have to spend more on Jobseeker’s Allowance
What is disinflation?
The falling rate of inflation
What are the triggers of demand-pull inflation?
- A depreciation in the exchange rate
- Fiscal stimulus
- Lower interest rates
- Increase in uk exports
When does cost-push inflation occur?
- Labour becomes more expensive
- Indirect taxes
- Depreciation in the exchange rate
- Changes in world commodity prices (raw materials)
What are the effects of deflation?
- Decreases spending
- Makes value of real debt higher as debt does not fall with price
- wages fall as firms make less profits
- worse rates of unemployment
What is the equation of exchange?
MV = PQ
Supply of money x velocity of circulation = price level x quantity of goods sold
What is the difference between short-run growth and long-run growth?
Short run - brings idle resources into production
Long run - increases the economies productive potential
How do we show short-run growth on a graph?
AD shifts right OR SRAS shifts to the right
What demand-side factors determine short run growth?
The components of AD|
C + I + G + (X-M)
What supply-side factors determine short run growth?
- A fall in costs of production
- A fall in taxes imposed on firms
- Increase in subsidies paid to firms
What supply-side factors determine long run growth?
Anything that increases Labour productivity
Eg
- improvements in technology
AND increase of the size of Labour force
How do demand-side factors determine long run growth?
Firms will only produce more goods ad services if their is sufficient demand in the economy to absorb the extra output
What are the costs of economic growth?
- Uses up finite resources such as oil
- Pollution
- Can destroy culture and communities