Economic Cycle and growth Flashcards
What is short run economic growth?
growth based on increased utilisation of unemployed resources
What is long run economic growth?
growth based on increasing the potential output level of the economy
what does short run growth involve?
moving from within PPF onto PPF
What does Long run growth involve?
expanding economy shifiting whole PPF outwards
What can short run growth be cuased by?
- increase in AD
- increase in SRAS
How does long run growth occur?
due to improvements on the supply side of economy, resulting from quantity and quality of the factors of production
What are the factors that would increase LRAS?
- increase in labour force
- imporvements in labour productivity
- capital investment
- new tech
- education
- gov policy
labour force effect on LRAS?
- making working more attractive through lower unemployment benefits or cutting income tax
- more in work, higher productive capacity
How does improvements in labour productivity effect LRAS?
- increase in skills level of workforce, increase in amount produced
capital investment effect on LRAS?
- more investment, able to produce more goods
what is economic cycle?
the repeated pattern of fluctuations in short-run economic growth and how it differs from the trend growth of the economy
What are the four parts of economic cycle?
boom, downturn, recession, recovery
what is a boom?
short run economic growth is above trend growth rate
characteristics of a boom?
- 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
What is a downturn?
rate of short run growth will start to fall but may still be positive