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Economic A Level > Economic Growth > Flashcards

Economic Growth Flashcards

1
Q

What is the trade cycle

A

It is the repeated pattern of fluctuating levels of economic activity measured by the changes in real GDP over time

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2
Q

What are the 4 stages of the trade cycle

A

Boom
slowdown
recession
recovery

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3
Q

What is the average potential growth rate

A

It is the underlying trend growth for the economy

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4
Q

What is a boom

A

It is when GDP rises faster than its long term trend

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5
Q

What is a slowdown

A

When GDP is still rising but the rate of growth has decelerated to a below trend rate

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6
Q

What is a recession

A

This is when GDP is falling for 2 consecutive quarters

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7
Q

What is recovery

A

This is when GDP rises and the economy moves out of recession. GDP growth will pick up towards its trend rate

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8
Q

What is short run economic growth

A

It is an increase in real GDP over the course of one year

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9
Q

What is long run economic growth

A

It is when there is an increase in a country’s productive potential

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10
Q

What are causes of short run economic growth

A

Higher consumer spending
Increased investment
Increased Government spending
Increased net exports

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11
Q

What causes a higher consumer spending

A

Income tax cut
Wages rising faster than inflation
Lower interest rates
Higher house prices and share prices
Increased consumer confidence

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12
Q

What causes an increase in Investment

A

Corporation tax cut
Increased business confidence
Increased rate of technological change
Lower interest rates
Gov Subsidies

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13
Q

What causes an increase in G

A

Change of party

Expanding economy

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14
Q

What causes an increase in net exports

A

Rising GDP in other countries
Depreciation of £
Improving quality of UK exports
Lower UK production costs
Low relative UK inflation rate
Increased use of protectionism

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15
Q

What causes long run economic growth

A

Increase in the quantity of resources available
Increase in the quality of resources available

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16
Q

What causes the increase in the quantity of resources available

A

Lower rate of interest
Lower corporation tax
Relaxation of immigration control
Increased child benefit
Reduction in school leaving age/ increase in retirement age
Reduction in income tax
Reduction in value of out of work benefits

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17
Q

What causes the increase in the quality of resources available

A

Increase in education spending
Increased training subsidies
Research and development subsidies

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18
Q

What is the rule of 72

A

If you divide 72 by the growth rate of something then it tells you how long it takes to double

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19
Q

What are the benefits of economic growth

A

Rising income/ improve living standards
Increase employment
Extra tax revenue
Economic growth by an increase in AS causes a decrease in general price level

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20
Q

What are the drawbacks of economic growth

A

Less leisure time for workers
Rise in general price level
Environmental damage

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21
Q

What are outputs gaps

A

It is a measure of the difference between the values of a nations actual output and its full employment potential output

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22
Q

What are negative output gaps

A

It is when actual, short run output is less than the long run potential output

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23
Q

What causes a negative output gap

A

Productive inefficiency in the economy
Unemployment
Depressed price level
GDP and living standards could be higher

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24
Q

What are positive output gaps

A

It is when the actual short run output is greater than the economy’s sustainable long run potential output

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25
Q

What does a positive output gap mean

A

The economy is at a level that it cannot sustain in the long run
Short run incomes and living standards will be temporarily higher
Inflationary pressures

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26
Q

How do you close a negative output gap

A

AD increases to a more rightwards lying position
SRAS increases to a more rightwards lying position

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27
Q

How do you close a positive output gap

A

AD decreases
SRAS decreases

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28
Q

What is the trend economic growth

A

It is a measure of the average increase in a nations productive potential over time

29
Q

What is the basic way living standards are measured

A

real GDP per capita

30
Q

What is the Gini coefficient

A

It is a scale which measures equality of money in a country
0 is perfect equality
1 is no equality

31
Q

Why is real GDP per capita a bad way to measure living standards

A

There could be inequality
The growth rate of GDP may not be sustainable
Rising GDP may be because of capital intensive productive methods
Economic growth may result in lots of pollution

32
Q

What is economic development

A

It is all efforts to improve the quality of life of individual citizens of a nation
It focuses on qualitative improvements in the human condition

33
Q

How is economic development measured

A

It is a process
Focuses on the outcomes of economic growth
Based on human well being
Economic growth is necessary for development but not sufficient, on its own

34
Q

What is the Human Development Index

A

It is the most widely used known measurement of economic development
Scores between 0 and 1

35
Q

What is HDI comprised of

A

GDP per capita
The adult literacy rate
Life expectancy at birth

36
Q

What are the 4 categorise in the HDI

A

Very High - above 0.8
High - between 0.7 and 0.8
Medium - between 0.55 and 0.7
Low - below 0.55

37
Q

What did Adam smith argue for countries to do about trade

A

It was in the best interest of countries to specialise in the areas of production in which they had an absolute advantage over other nations

38
Q

What is absolute advantage

A

It is having an efficiency advantage in terms of being able to produce more output from a given level of inputs

39
Q

How do countries trade where each one has an absolute advantage

A
  1. Find each countries absolute advantage and then each country specialise in making that product
  2. Both countries find a mutually beneficial exchange rate
  3. Trade products
40
Q

What did David Ricardo argue`

A

It is not necessary to have a situation of absolute advantage in production in order to benefit from trade

41
Q

What is comparative advantage

A

When a country produces a good with the largest margin of superiority or the smallest margin of inferiority in production compared to other nations

42
Q

How would 2 countries trade if one country had an absolute advantage in everything

A
  1. Find each countries comparative advantage and specialise in that
  2. Find an exchange rate between the internal exchange rates of both countries
    e. g. One exchange rate is 1:3 and the other is 1:1, use a 1:2 exchange rate
  3. Trade goods for the other countries goods
43
Q

What can free trade cause

A
  1. Allows countries to consume outside their PPF
  2. The distribution of benefits from trade is not equal, better countries gain more
  3. It is bad and risky to over specialise in one area
  4. A countries comparative advantage changes over time
  5. Opportunity cost affected by tariffs
44
Q

What are the UK’s comparative advantage

A

Financial services
Entertainment
Chemicals and Pharmaceuticals
Aerospace
Medical Technology

45
Q

What affects comparative advantage

A

The productivity of the country producing that good
This will affect costs and so competitiveness

46
Q

What determines the relative costs of production

A

The quality and quantity of factors of production
Investment in R&D
Long Run movements in the XR
Relative rates of inflation
Import controls
Non price competitiveness of producers (design, quality of product)

47
Q

What is free trade

A

It is when goods and services are able to move across international borders without any intervention by governments that affects the prices or quantity’s traded

48
Q

What are trade liberalisation policies

A

Policies that promote free trade

49
Q

What are protectionist policies

A

Policies designed to reduce free trade

50
Q

What are the arguments for free trade

A
  1. Total world output can be increased leading to a rise in global living standards
  2. Consumers have a greater choice which means a lower price
  3. Competition causes firms to be efficient
  4. Firms can manufacture in greater quantities which means more efficient and lower prices
  5. Countries are more friendly and less war
51
Q

What is protectionism

A

It is any measure taken by governments to distort the market in favour of domestic firms competition with foreign importers

52
Q

What 2 ways does protectionism work

A

To reduce the purchase of imports
To increase the demand for exports

53
Q

What protectionist measures are there

A

Tariffs
Subsidies
Quota
Currency depreciation
Non price protectionist measures

54
Q

What are tariffs

A

It is an import tax on foreign goods
Shifts supply left

55
Q

What are subsidies

A

A payment to firms to help reduce costs
Shifts supply to the right

56
Q

What is a quota

A

It is physical limit on the amount of imports that can enter the country
Makes the supply curve perfectly inelastic
A ban is a more extreme quota

57
Q

What are non price protectionist measures

A

They enforce strict quality and safety standards on imports to raise the cost of production
OR make it harder and slower for the imports to enter the country

58
Q

Who are the losers from tariffs

A

Domestic consumers - higher prices and less consumer surplus

59
Q

Who are the winners from tariffs

A

Inefficient domestic firms - increase sales and producer surplus
Government - Tariff revenue

60
Q

What are the effects on efficiency of tariffs

A

There are 2 losses of welfare caused because some goods are never produced and some goods are made more inefficiently than they could have been

61
Q

Who are the winners of export subsidies

A

UK firms - increase in producer surplus

62
Q

Who are the losers of export subsidies

A

Government - Pay for subsidy

63
Q

What is the effect of subsidies on efficiency

A

Loss of welfare from goods being produced less effectively

64
Q

What are the arguments for protectionism

A

Meet macro objectives
Protect infant industries
Protect strategic industries
As an “anti-dumping “ policy

65
Q

What is dumping

A

Selling goods at a lower than production costs price to get rid of other companies

66
Q

What are the arguments against protectionism

A

Distorts comparative advantage
Higher prices for consumers
Retaliation
Long term dependency on protectionism

67
Q

What is the World Trade organisation

A

international trade body that exists to promote free trade amongst nations

68
Q

Supply side policies

A

Income and corporation tax changes - super deduction tax relief
Whole economy migration policies post Brexit
Trade agreements
Infrastructure Projects - HS2, smart motorways
Increases in state spending on health and social care
Increased funding of education at different ages
Make national labour markets flexible

Economic A Level (22 decks)

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