C31 - C33 Economics Growth Flashcards
What is economic growth?
Increase in the productive potential of the economny
How is economic growth measured?
As a percentage of the change in real GDP
What is long-run economic growth (a.k.a potential growth) caused by?
Q^2 CELL
How is long-run economic growth measured?
The trend rate of percentage change in real GDP
What is a boom?
A period of rapid economic growth ( fall in unemployment and rise in inflation)
What is a recession?
negative economic growth for 2 consecutive quarters
What is recovery?
When economic growth starts to occur again
What’s a negative output gap?
When the actual output is below the trend output
What is a positive output gap?
When the actual output is above the trend output
What are the benefits of economic growth?
Decrease in unemployment
Higher wages
Better standard of living
Firms get more profit and invest more
Increase in the production potential
Improvement to public sectors
Environmental benefits
More tax revenue so less borrowing
What are the costs of economic growth?
Income inequality for low-skilled workers
Higher wages mean more responsibility meaning more stress
Demand-pull and cost-push inflation
High wage –> more imports –> imbalance to balance of payments
Negative externalities
Finite resources used up
Why is a recession bad?
Firms close down
More unemployment
Less Tax revenue
Less investment
What benefits may come from a recession?
Discount retailers get more sales
Firms may fix inefficiencies so in the long run are more efficient