Chapter 22 Flashcards
What is economic growth
The expansion in the productive potential of the economy. This can be shown by an outward shift in the PPC, or a shift in a country LRAS
what is the UK government’s macroeconomic objective
They aim to provide macro stability. Economic growth of 2.5% per year.
What is short-run economic growth
An increase in AD/actual output. On a PPC, when the economy moves towards the PPC from point within it
What is GDP
GDP measures the number of goods and services produced in an economy.
What does economic growth lead to
Benefits: Higher living standards and more employment opportunities, improved business confidence, and improved public services due to more tax revenue.
Costs: Increased stress and determination of the quality of life. Inflation , inequality gap, disease of affulence
Real GDP
The value of GDP adjusted for inflation. For example, if the economy grew by 4%, but inflation was 2%, real economic growth is 2%
Nominal GDP
The value of GDP without being adjusted for inflation.
GDP per capita
Is the value of the total GDP divided by the country’s population—the average output per person in the economy.
It can be calculated by GDP/population
Characteristics of a boom
High rates of economic growth
near full capacity
Positive output gaps
(near) full employment
Demand-pull inflation
Consumers and firms have a lot of confidence, which leads to high rate of inflation
Characteristics of recession
- In the UK its negative growth over 2 consecutive quarters.
Negative economic growth
A lot of spare capacity in the economy
Negative output gaps
low-interest rates
Government budgets worsen due to more spending on welfare payments and lower tax revenues
less confidence among consumers and firms, which leads to less investment
Demand-deficient unemployment
Factors causing economic growth
Increase in Ad
Improving the labour force, better quantity and quality which not only increases productivity but also increase productive potential of the economy
Capital deepening, increasing size in capital stock
More investment
Low interest rates
What is actual growth
This is short-run growth, the percentage increase in real GDP. I
What is potential growth
The long-run expansion of the productive potential of the economy. It is caused by an increase in AS. The potential output of economy if resources where fully employed.
Costs and Benefits to consumers
Costs: Those on fixed incomes will feel worse of due to increased inflation and this could lead to further inequality
Shoe and leather costs, they have to spend more time and effort finding the best prices when they are rising.
Benefit: The average consumer income increases more people are in employment and wages increase. Consumers feel more confident in the economy, which increase consumption and living standards
Costs and benefits to firms
Costs: Menu costs, the costs of changing the prices as a result of higher inflation. They have to keep changing their prices to keep up with inflation and sustain profits
Benefits: Firms might make more profits which might increase investment. Also driven by higher levels of consumer confidence. Development of new technologies, which could improve production and lower costs. Economies of scale
