Economic Cycle and growth Flashcards

1
Q

What is short run economic growth?

A

growth based on increased utilisation of unemployed resources

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2
Q

What is long run economic growth?

A

growth based on increasing the potential output level of the economy

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3
Q

what does short run growth involve?

A

moving from within PPF onto PPF

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4
Q

What does Long run growth involve?

A

expanding economy shifiting whole PPF outwards

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5
Q

What can short run growth be cuased by?

A
  • increase in AD

- increase in SRAS

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6
Q

How does long run growth occur?

A

due to improvements on the supply side of economy, resulting from quantity and quality of the factors of production

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7
Q

What are the factors that would increase LRAS?

A
  • increase in labour force
  • imporvements in labour productivity
  • capital investment
  • new tech
  • education
  • gov policy
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8
Q

labour force effect on LRAS?

A
  • making working more attractive through lower unemployment benefits or cutting income tax
  • more in work, higher productive capacity
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9
Q

How does improvements in labour productivity effect LRAS?

A
  • increase in skills level of workforce, increase in amount produced
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10
Q

capital investment effect on LRAS?

A
  • more investment, able to produce more goods
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11
Q

what is economic cycle?

A

the repeated pattern of fluctuations in short-run economic growth and how it differs from the trend growth of the economy

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12
Q

What are the four parts of economic cycle?

A

boom, downturn, recession, recovery

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13
Q

what is a boom?

A

short run economic growth is above trend growth rate

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14
Q

characteristics of a boom?

A
  • consumer confidence will be high with consumer spending rising quickly
  • business confidence is high (high investment)
  • gov finance heading toward budget surplus
  • current account moving towards deficit or more into
  • low unemployment
  • inflation may be rising
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15
Q

What is a downturn?

A

rate of short run growth will start to fall but may still be positive

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16
Q

Characteristics of a downturn?

A
  • business confidence will fall, investment falling
  • consumers reducing amounts borrowed in finance
  • growth in consumer spending slowing
  • inflation may still be above average but not rising
  • tax revenue may begin to fall due to reduced economic activity
17
Q

What is a recession?

A

two consecutive quarters of a year where short run economic growth is negative

18
Q

characteristics of recession?

A
  • business confidence low
  • investment low
  • falling consumer spending
  • unemployment will rise and may reach high levels
  • inflation should fall
  • budget deficit at its largest
19
Q

What is recovery in the economic cycle?

A

where short run economic growth starts to increase after a recession

20
Q

characteristics of a recovary?

A
  • returning consumer and business confidence
  • inflation is likely to remain low
  • unemployment remaining high
  • budget deficit should stop increasing
21
Q

What is an output gap?

A

the difference between actual growth and trend growth

22
Q

What is a positive output gap?

A

actual growth is higher than trend growth

23
Q

What is a negative output gap?

A
  • exists where actual growth is below trend growth
24
Q

When is unemployment likely to rise (output gaps)?

A

when output gap is negative as there are unemployed factors

25
Q

What are economic shocks ?

A

sudden, unexpected events that will affect the macroeconomy, especially the growth rate

26
Q

What are the two types of economic shocks?

A
  • demand side shocks

- supply side shocks

27
Q

What are demand side shocks?

A

unexpected and significant changes in the level of AD

28
Q

What will demand side shocks effect?

A

national income, unemployment and infaltion

29
Q

What are supply side shocks?

A

unexpected and significant changes in the price of factors of production or the availability of factors of production

30
Q

what will the effect of supply side shocks be?

A

willingness of firms to produce output and lead to large changes in the level of AS