Economic Growth Flashcards
Define economic growth
Economic growth refers to increases in an economies productive capacity, meaning the economy is now capable of producing more goods than it could previously. This can be shown by an outwards shift in the PPF diagram.
What is the difference between potential and actual growth?
Potential growth refers to increases in the economies output, i.e. real GDP.
Potential growth measures increases in the economies PPF, meaning we can produce more goods and services each year.
What are the 4 stages of the trade cycle?
1 - Recession - where the economy is at it’s weakest, unemployment is high. GDP may be falling.
2 - Recovery - The economy is getting stronger, unemployment may be faling. GDP may be falling slower and eventually increasing .
3 - Boom - GDP will be going up at a fast rate, unemployment will be low, firms profits will be fairly high, increasing investment. However as businesses begin to struggle keeping up with demand, inflation will start to increase.
4 - Slowdown - booms will eventually come to an end - usually due to decisions made by the government, then the economy goes into reverse. We may end up in a recession again, causing the cycle to repeat.
Causes of Economic Growth
1) Quantity of resources. E.g. new discoveries, increases in immigration.
2) Improvements in the quality of resources avalible in the UK - Training, new technology developments.
3) The efficiency with which those resources are used - hours used, managerial decisions.
4) The effect of government policies- money spent i.e. infrastructure
Benefits of growth
1) Its going to make us richer - our standard of living will improve.
2) producing more will help create more jobs, helping to reduce unemployment.
3) It will tend to improve the government’s finances
4) It tends to reduce the level of poverty within the economy, because of:
- Unemployment decreasing
- More government spending
Costs of Growth
1) It might have a negative effect on the environment because:
- The more we produce the mkre energy we use, the more waste we generate.
- The more we grow the more we consume
- Building more factories, roads, shop, means destroying more of the natural environment.
2) Not everybody will benefit equally from growth - people with skills working in successful industries benefit more, e.g. IT industry
3) Growing too fast could lead to a boom, increasing inflation.
4) Theres a danger that if we grow too fast, we will end up using too many of our natural resources too quickly and over time that growth will not be sustainable.
Problems with government policies used to grow
1) Expensive with opportunity cost
2) Often take long time to work, e.g. education
3) Policies may be subject to government failure e.g. HS2 (not efficient)
