Economic Growth Flashcards
Define actual growth
Actual growth is measured by the annual percentage change in a country’s real national output (GDP).
Define potential growth
Potential economic growth (Trend Growth) is measured by the estimated annual change in a country’s potential level of national output.
What macro-economic goal has to do with growth
The government’s economic growth macroeconomic objective is to have sustained and sustainable economic growth.
How is short and long term growth calculated
Short term growth is calculated annually by the percentage change in real national output. Long term growth is a trend, which is a potential.
How is short-term growth achieved
Short-term economic growth is achieved by – Using up existing spare capacity, an increase in the rate of factor utilisation (land, labour, capital)
Define Real GDP, Nominal GDP and GDP per capita
Real GDP is the value of GDP adjusted for inflation.
Nominal GDP is the value of GDP without being adjusted for inflation
GDP per capita is the value of total GDP divided by the population of the country.
How is short-term growth shown in the PPF
A movement in the Dot in the PPF
How is long-term growth shown in the PPF
An expansion in the lines of the PPF
How is short-term growth shown in a Keynesian Diagram
a shift in AD
How is long-term growth shown in a Keynesian Diagram
A shift in the LRAS line
How is short-term growth shown in a Classical Diagram
A shift in AD or SRAS
How is long-term growth shown in a Classical Diagram
A shit in the LRAS line
What does the LRAS curve show
The LRAS curve is the level of output shown by the trend rate of growth in an economy.
What are the benefits of growth
Boosts living standards through a higher real GDP per head
Increased output creates new jobs & reduces unemployment
Increased tax revenues for government
Improved business confidence
What are the drawbacks of growth
Increased inequalities of income
Unbalanced growth risk of demand-pull inflation
Increased demand for imports
Environmental impact
What are the demand side causes of growth
Higher consumer spending
Increased capital investment
Rise in gov spending on G&S
Increased export
Reduction in import spending
What are the supply-side causes of growth
Higher productivity
Increased supply of factor inputs
Expansion of employable labour supply
Exploitation of new finds of natural resources
Technological advancements
Define recession
A recession is a significant, widespread, and prolonged downturn in economic activity. Or In the UK, a recession is defined as two consecutive quarters of negative economic growth.
Define Factor market flexibility
Factor market flexibility refers to the ease with which factors of production—namely labour, capital, land, and entrepreneurship—can be adjusted in response to changes in economic conditions and market demands.
Why is flexibility in factor markets important
Flexibility in factor markets is crucial for maintaining competitiveness, especially in a globalised economy.
It helps economies adjust to technological advances
Additionally, flexible factor markets can better withstand and recover from economic shocks
Define factor markets
In economics, a factor market is a market where factors of production are bought and sold. Factor markets allocate factors of production, including land, labour and capital
Define output gap
An output gap is the difference between potential GDP and actual GDP. In the real world, the rate of economic growth is rarely constant. We can have positive and negative output gaps.
Define positive output gap
A positive output gap will occur when the actual economic growth is above the sustainable potential, e.g., if the long-run trend rate is 2.5%, but we have growth of 4%
A positive output gap occurs when AD increases faster than AS.
What does a positive output gap lead to
A positive output gap leads to:
- Inflation, because the demand is growing faster than the supply.
- Lower unemployment due to greater demand for workers.
- A deterioration in the current account balance of payments.
- The Central Bank may deal with the inflation by putting up interest rates.
- The ‘boom’ will be unsustainable and may lead to an economic downturn.
