4.2.3.1 Economic growth and the economic cycle Flashcards
1
Q
Short-run economic growth
A
- Growth based on increased utilisation of unemployed resources
2
Q
Long-run economic growth
A
- Growth based on increasing the potential output level
3
Q
Determinants of short-run growth
A
Increase in either (or both) of the following:
- increases in AD
- increases in SRAS
In most cases - increases in AD generate SR growth - measured by % change in GDP
4
Q
Determinants of long-run growth
A
- Comes from increases in the economy’s productive capacity
- Improvements in the ‘supply-side’ of the economy
- These improvements result from improvements in either the quantity and/or quality of the factors of production available to an economy
Shown by rightward shift of LRAS curve
5
Q
Causes of SR growth
A
- Lower interest rates
- Lower income/corporation tax
- Higher consumer/business confidence
- Higher govt spending
- Weaker exchange rate
6
Q
Factors that would increase LR growth
A
- Increases in labour force (labour supply)
- Improvements in labour productivity
- Capital investment
- New technology
- Education
- Government policy
7
Q
How do increases in the labour force increased LR growth?
A
- Population size - limits labour supply - can be increased by allowing more immigration
- Increasing retirement age + encouraging inactive people to enter workforce
- Making it financially less attractive to remain out of work - will increase the labour supply:
- paying less generous U benefits
- increasing incentives for the unemployed to take work (cutting Y tax/allowing tax credits for those on low incomes)
8
Q
How do improvements in labour productivity increase LR growth?
A
- Rise in workforce’s skills level - should increase amount that can be produced
- Increases in training undertaken by workers
9
Q
How does capital investment increase LR growth?
A
- Contributes both SR growth (through rise in AD) and LR growth (through rise if LRAS)
- More investment in capital stock (equipment, premises, etc) - enables firms to produce more output
- Govt can encourage firms’ investment by creating a more stable macroeconomic climate - where businesses can plan investment with more confidence
10
Q
How does new technology increase LR growth?
A
- Usually lead to productivity improvements for capital equipment
- E.g. - design and manufacturing work - can take place more efficiently through robotic and computer technology
- Technology improvements - raise ability of an economy to produce more output with a given capital stock
11
Q
How can education increase LR growth?
A
- Schools, colleges, unis - should lead to improvements in worker productivity
- Occupational immobility can be reduced by ensuring education prepares the future workforce for an increased variety of occupations
12
Q
How can govt policy increase LR growth?
A
- ‘Supply-side’ policies
13
Q
Benefits of economic growth
A
- Higher living standards for population
- Easier to find jobs - if growth sufficiently high
- Improved social indicators for population - e.g., less crime
- Increased tax revenue
- Reduced welfare expenditure
- Lower absolute poverty
- Greater international status for govt
14
Q
Costs of economic growth
A
- Increased inflation if SR growth rises too quickly
- Depletion of natural resources
- Possible increases in inequality - depends on how growth is ‘shared out’
- Increased negative externalities (congestion, pollution)
15
Q
Define sustainable growth
A
- Growth that doesn’t compromise the economy’s ability to grow in the future
- Doesn’t rely on non-renewable resources to generate the growth
