Economic Growth

Question 1

economic growth

Answer 1

an increase in a country’s productive capacity over a specific period of time, as measured by GDP

Question 2

GDP

Answer 2

measures the total value of all goods and services produced within a country over a specific period of time

Question 3

real GDP

Answer 3

the value of GDP adjusted for inflation

Question 4

nominal GDP

Answer 4

the value of GDP without being adjusted for inflation

Question 5

GDP per capita

Answer 5

the value of the total GDP divided by the population of the country

Question 6

short run economic growth caused by

Answer 6

-cyclical changes in real GDP
-changes in AD
-changes in SRAS

Question 7

long run economic growth

Answer 7

potential output/ trend growth, caused by an increase in LRAS

Question 8

factors affecting long run economic growth

Answer 8

-increased investment
-improved productivity
-increased labour supply
-research
-discovery of new resources
-funding for new enterprises

Question 9

benefits of economic growth

Answer 9

Living standards
Employment
Accelerator effect
Fiscal dividend

Question 10

costs of economic growth

Answer 10

Price level
Inequality
Environmental effects
Sustainability

Question 11

economic shocks (exogenous/endogenous)

Answer 11

unpredictable changes in AD and SRAS which lie outside our normal macroeconomic models. the unpredictable nature of these shocks create a fluctuating rate of economic growth
endogenous= internal (national)
exogenous = external (global)

Question 12

factors affecting demand-side economic shocks

Answer 12

-interest rates
-tax rates
-exchange rates
-asset prices
-confidence
-trading partners

Question 13

factors causing supply-side economic shocks

Answer 13

-wages
-taxes
-subsidies
-weather
-raw materials
-commodities
-natural disasters

Question 14

recession

Answer 14

two or more consecutive quarters of negative economic growth

Question 15

causes of recession

Answer 15

-financial crisis
-rise in interest rates
-fall in asset prices
-fall in real wages
-fall in confidence
-appreciation in exchange rate
-fiscal austerity
-trade war
-rise in oil prices
-strikes

Question 16

economic cycle

Answer 16

regular fluctuations in the level of economic activity around the productive potential of the economy

Question 17

hysteresis

Answer 17

when an economy is disabled by recession, there is a big risk of a permanent loss of national output. high rates of structural unemployment may cause a shrinking labour force

Question 18

creative destruction

Answer 18

recessions prompt the emergence of new business models and an increase in start-ups. new technologies can act as a catalyst for renewed economic growth and investment

Question 19

the three schools of thought

Answer 19

-monetarist model
-new classical model
-real business cycle model

Question 20

the monetarist model

Answer 20

(aka neo-quantity theory of money model) monetarista believe that it is the money supply that dictates how the economy performs. steady monetary growth can serve as an automatic stabiliser

Question 21

the new classical model

Answer 21

people anticipate what government will do to try to hype the economy, and will act in ways that makes demand management policies ineffective-so don’t mess with the economy

Question 22

the real business cycle model

Answer 22

a macroeconomic model that focuses on the real, rather than monetary, causes of the business cycle. instability is from the supply-side, so don’t mess with keynesian demand-side policies