economic growht Flashcards
define economic growth
increase in real gfp in an economy in a year cuased by and increase in AD or LRAS
what are the two under growth of econ growht
shoer run growth
long run growh
short run growht is known as
actual growth
define short run growht
increase in AD in an econ
CUZ using up spare apapcity
to increase output of goods and services in and economomy
whihc increases RGDP
Which two grphs can we use to show increasing short run growth
draw em
LRAS and AD shift right
PPF curve increase within) goods and services
in short run economic growth AD shifting righ dhoed econ is using up spare capacity how
had -veoutput gap but now closing it by moving twrds Yfe
as we move towards it with shifting AD we close it
as econ prodcuing more g/s and suing up spare capacity to do so
state the 5 reasons why short run eocn growht occurs
hint remener AD
lower interest rates
lower income /corp tax
higher consumer and business confidence
hgiher gov spending
weaker ER
WHY DOES LOWER Interst rate boost AD
Cheaper for consumer and bs to borrow to invest and consume
weakens exchange rate - hot money outflows look for best interst rate - sell off currency - increases supply of £
exports now cheaper making em internationally competitive whihc bosts AD
Explain how lower income and corporation tax casues short run growth
more disposable income so more consumer spedning = more ocnsumptuio
more retained profit for firms whihc can use to invest
explain how high consumer and business confidece cna increase short run growht
leads to more consumption and investment which boosts AD
Explain hwo a weaker exchange rate causes short run growth
boosts X-M as exports cheaper
what is long run economic growht
increases in LRAS which increase productive capapcity of an economy
what does increased productive capacity of an economy
has potential to grow a faster rate
dont mean growing at faster rate just got potentia
what 2 graphs can we use to show long run economic growht
lras ad shift lras - but straight line
production possibility frontier shifting outwards
how do we know from our grpah that the long run eocnomic growth has occured
the full employment level of output has incrreaed from yfe 1 - yfe 2
what are the 3 reasons LRAS shifts righ t
casue of increases in the
quantity
quality
productive efficiency of an economy
what are the 6 reasons LRAS will shift right
increased labour productivity
increased workforce size
increased investent
infrastructure imporvements
increase in competiton
new resource discoveries
explain how increasing labour productivity will increase LRAS
INCREASES QUALITY OF LAOBOUR FROM TRAINIGN
explain how increased workforce size shifts LRAS
e.g thorugh immigtaition
we ahve increased qunaityt of labour
explin how investment increases LRAS
New efficient tech /innovation means we have increased the quantity of capital if tis coming in and increases quality if its an upgrade
decreases long run costs of production for a firm causing prod eff to increase which causes LRAS to shift right
explain how infrastructure imporvements shift LRAS right
e.g transport reduces long run costs of production as its cheaper and easier to tranpsort goods
cheaper and easier to access raw materials = PRODUCTIV EEFFICIENCY
if tis physical such as hospital or schools this increase quanittiy of capital
explain how increased competiton is a cause of long run econ growth i.e shifts LRAS right
firm in econ must find ways to reduce LR COP to be comp
therfore boost PE shifting LRAS right
explain how new resource discoveries can cause LRAS to shift right
this counts as land FOP
therfore increasing quantity of land whihc shifts LRAS to the right
