Economic Growth Flashcards
What does economic growth refer to
An increase in the productive capacity of the economy
When is an output gap
The difference between actual rGDP and productive potential
What is the difference between actual and potential growth
Actual is SR (shift in SRAS or movement along PPF
Potential is shift in LRAS or PPF
When does a positive output gap occur
Actual rGDP is above productive potential of an economy and it is in a boom
What is a recession
A period when output or growth in output falls over 2 consecutive quarters
Why is growth beneficial for an economy
Leads to higher life expectancy, as government can spend more on healthcare
Housing standards improve, as people have more money so demand better houses.
Literacy improves as education gets better, skills also improve
Can lead to development
Why is growth beneficial
Leads to higher life expectancy
Housing standards improve, as people have more money so demand better houses
Literacy rates and skills improve as education gets more funding
Can lead to development
What are the downsides to growth
Can be unsustainable if it is SR, such as from exploiting raw materials
Can harm environment
May increase inequality as the rich are the ones who benefit
Can cause inflation
Can worsen balance of payments if imports increase due to people having more disposable income
