Economic growth Flashcards
What is economic growth
an increase in real GDP in an economy in a year caused by an increase in AD or LRAS
What is an increase in AD also known as
short run growth (actual growth)
What is short run growth (actual growth)
Where the economy is using spare capacity to increase real GDP
How many diagrams can show actual growth (short run growth)
1 - an LRAS curve with two AD curves.
2 - a PPF with point X and point Y
What do both short run growth (actual growth) diagrams show
how the economy uses up spare capacity to produce more goods and services which closes the negative output gap
What are the causes of short run growth (actual growth)
- lower interest rates
- lower income/ corporation tax
- higher consumer/ business confidence
- weaker exchange rate
- higher government spending
When considering causes of short run growth what equation do you need to remember
AD = C+I+G+(X-M)
What is an increase in LRAS also known as
long run growth (potential growth)
What is long run growth (potential growth)
the increase in productive capacity of the economy
How many diagrams can show potential growth (long run growth)
1 - two LRAS curves and one AD curve
2 - a PPF1 and PPF2
What do both long run growth (potential growth) diagrams show
A shift in LRAS - the full employment of the economy increases with the shift
What are the causes of long run growth (potential growth)
- increase in labour productivity
- increase in workforce size (immigration)
- investment
- increase in competition
- new resource discoveries
When considering causes of long run growth what do you need to consider
the three reasons for shifts
What are the three reasons for shifts
- increase in quantity of FoP
- increase in quality of FoP
- increase in productive efficiency
What does FoP stand for
Factors of Production
How many benefits are there from economic growth
5
What are the 5 benefits of economic growth
1 - higher living standards
2 - unemployment effects
3 - fiscal dividend
4 - accelerator effect
5 - environment
How are higher living standards a benefit of economic growth
real GNI per capita helps to lift people out of poverty and improve development outcomes
how are employment effects a benefit of economic growth
sustained growth creates jobs which lowers unemployment and reduces inequality, relative poverty and social problems
How are fiscal dividends a benefit of economic growth
higher GDP growth raises tax revenues & reduces welfare spending therefore allowing extra spending more on public and merit goods
How is the operator effect a benefit of economic growth
rising growth stimulates new investment
how is the environment a benefit of economic growth
With higher real GDPa society has more productive resources available to invest.
How many costs of economic growth are there
5
What are the 5 costs of economic growth
1 - risk of higher inflation and interest rates
2 - widening trade deficit
3 - environmental costs
4 - inequalities of income and wealth
5 - well-being issues
How is the risk of higher inflation and interest rates a cost of economic growth
rapid growth can lead top demand-pull and cost-push inflation, so banks raise interest rates to control inflation
How is the widening trade deficit a cost of economic growth
rising consumer spending may lead to an increasing trade deficit as demand for imports soars
How are environmental costs a cost of economic growth
negative externalities such as increased pollution and waste
How are inequalities of income and wealth a cost of economic growth
there are inequalities of income and wealth
How are well being issues a cost of economic growth
longer working hours which increases stress and reduces wellbeing
What are the three points we use to evaluate benefits and costs of economic growth
- depends on underlying cause of growth.
- depends on how proceeds of economic growth are distributed
- depends on if the rate of growth is sustainable
What are the 3 main types of growth
balanced growth, sustainable growth and inclusive growth
what is balanced growth
- sectoral balance - between industries
- regional economic balance
- urban VS rural balance
- internal VS external balance
- balance between consumption and investment spending
What is sustainable growth
- meets needs of current generation w/o limiting future resources
- sustainable development - pass on as much capital as possible
- environmental sustainability - long run protection of natural capital
what is inclusive growth
- where the benefits are widely distributed
- growth drives higher median per capita incomes
- progress made in reducing relative poverty
- improving opportunities for all groups
- measured to tackle discrimination and barriers for affected groups
