Economic Growth Flashcards
What causes short run economic growth
Increases in AD and increases in AS without a time lag like reduction in production costs
What causes long run economic growth
Increase in productive potential of an economy, caused by increases of AS in rises in quality or quantity of CELL.
What is a boom
Economy is growing quickly and aggregate demand rises, employment to increase and inflation to rise
What is a recession
Negative economic growth for two consecutive quarters, aggregate demand falls so unemployment rises and rise in disinflation or deflation
What is a recovery
Economy grows again after a recession so there is positive economic growth, aggregate demand rises
Negative output gap
Occurs in a recession as actual output is below trend output because resources are underused in economy.
What is trend rate of growth
The average rate of economic growth over a period of booms and recessions
Positive output gap
Occurs during a boom when actual output is above trend output because resources are being fully used or overused
Benefits of economic growth
- increase in demand for labour which improves unemployment with higher income
-rise in living standards as wages rise - increase economy’s productive potential as more profit means firms invest in better machinery
- firms produce more so balance of payments improves as more exports
- government debt improves as high wages increases tax revenue and less unemployment benefits payed
Costs of economic growth
- increase inequality gap as low skilled workers can’t get high wages skilled workers are getting
- causes inflation as demand for goods or demand for resources will increase so price will be pushed higher
- deficit in the balance of payments as higher income people purchase more imports, firms import more resources
- damages environment as resources may be over exploited and production in industrial expansion increases so pollution will increase.
Impacts of a recession or negative economic growth
- unemployment increases as firms close down
- government spending increases as they spend more on benefits and reduce tax
- investment in firms decrease which impacts long run productive potential
- discount retailers may benefit as people have less disposable income
- firms may become more efficient as they cut costs and will stay that way in the long term
actual growth
short run which fluctuates over time
potential growth
long run growth shown by trend rate of growth
what does long run growth do to a PPF
shifts the PPF curve outwards
what does short run growth do to the PPF
shifts the point from below the curve to on the curve
