Economic growth Flashcards
What is potential economic growth?
expansion in productive capacity of economy
What is actual economic growth?
rate of growth of real GDP in a period
If workforce becomes more skilled, what will be the effect on the long-run aggregate supply curve?
shifts right
If workforce becomes more skilled, what will be the effect on average price and on output?
average price down and output up (as LRAS shifts right so extension of AD)
Define the output gap
difference between actual real GDP and maximum possible real GDP
If the economy is operating below full employment level, what can we deduce about the output gap?
It is negative.
How would it be possible for the output gap to be positive?
Actual real GDP > full capacity - can occur in short run only, eg by workers doing overtime
Is it possible to measure the output gap? Explain your answer.
Not really, as not feasible to identify exactly the full capacity of an economy
What does productivity measure?
efficiency of a factor of production
What does labour productivity measure?
output per worker or per hour worked
What does capital productivity measure?
output per unit of capital
What doese total factor productivity measure?
average productivity of all factors, measured as total output divided total amount of inputs used
What are the two ways in which capacity output can be increased?
- increase in quantity of factors of production
- improvement in efficiency/productivity of factors of production
What is investment?
expenditure by firms on capital goods
Define human capital
stock of skills and expertise that contribute to a worker’s productivity
How can human capital be increased?
through education, training and healthcare
Why is export-led growth particularly important for small countries?
It makes them more able to achieve economies of scale.
What characterises a boom period?
rapid growth and higher GDP than its trend value, as part of the trade cycle
What are the stages of the economic cycle?
recession - (trough) - recovery - boom - (peak) - slump
In a recession, are unemployment and inflation likely to be high or low?
- unemployment high
- inflation low (but not always)
What was the average real GDP growth 1980 to 2007?
2.5% pa
How is a recession defined?
when GDP falls for two or more consecutive quarters
Name two years when there was negative growth in most major economies.
- 2009
- 2020
What effect is economic growth likely to have on the average household?
- higher incomes
- more employment opportunities
What effect is economic growth likely to have on firms?
higher profits
What effect is economic growth likely to have on government finance?
- Higher tax revenue
- Lower need for benefits
- Higher spending or debt payments possible
How long did the recession last in the UK in late 2000s?
18 months, ie six quarters
Define sustainable development.
develipment that meets the needs of the present without compromising the ability of future generations to meet their own needs
What trade-offs might there be to economic growth?
current consumption
environment
structural change leading to unemployment
social/health effects eg stress, lack of leisure time
