economic growth Flashcards
explain economic growth
- economic growth is macroeconomic performance indicator
- economic growth is increase in economy output
- economic growth rate is annual percentage change in real GDP
- for people to enjoy more GNS economic growth must exceed any increase in population this lead to GDP per capita to rise
- economic growth sustained it helps to eradicate poverty
explain are economic growth and economic development linked
- economic growth assumes to give trickle down effect thus poor members benefits
- but economic growth does not lead to increase in standard of living or quality of life its possible no economic growth but redistribution of income, less pollution
- economic development is increase in social welfare and quality of life
explain nominal GDP real GDP how to convert in detail
- nominal GDP is output at current prices its misleading as GDP may rise due to rise in price level not because more GNS produced
- real GDP GDP at constant price which is base year prices it ensures inflation that distorts is removed
- price index which is comparing price changes converts nominal to real is GDP deflator
. GDP delfator is price index of domestically produced GNS =nominal GDP*price index base/price index current year
how to show high economic growth
- if spare capacity output can rise with rise in AD show on PPC and AD increasing on spare capacity diagram
quantity of resources
- supply of worker or entrepreneurs rise due to immigration of working age
- new discoverers of resources like land gold mines
- govt policy deregulation, higher retirement age, privatization
supply capital goods rise if net investment buying more capital to replace capital out of use
increase quality of resources
- productivity of inputs quality entreprenuership rises education training healthcare
- land irrigation fertisers
3.capital good technolgy advance
show this shift LRAS and PPC shift
explain recession
economic growth negative real GDP falls over two consecutive quarters. by less AD and less AS
why economic growth less in low income conutries
- opportunity cost of allocating resources away from curretn use
ex more resource education les healthcare
more resources cpaital good temporary less SOL less consumer goods
RND for advnaces capital goods alterative uses
costs for economic growth
- if economy is all full employment opportunity cost of economic growth .for capital goods to increase productive capacity reduce the consumer goods SOL less but LR increase investments increase both
- stress anxiety work hours more
- economy undergoes structural changes if workers cant cope with new skills structural unemployment
- depletion of natural resources like fish stock, oil reserves pollution negative externality
benefits of economic growth
- trickle down effect poor members get better healthcare, housing, education less poverty SOL
high - high employment high AD derived demand internationally competitive
- if stable economic growth increase confidence further investment and economic growth . it adds international power prestige ex china rapid econmic growth since 1990s add power
explain actual economic growth
potential economic growth
when output increases real GDP its refered as short run economic growth rate by greater utlisation of exiting resources by using spare capacity AD shifts and in PPC increase .
potential economic growth increase in productive capacity LR economic growth.PPC frotier shift and LRAS shift
what is output gap explain neg pos output gap
output gap-its difference between actual and potential growth.
negative output gap-actual output is below potential output its by lack of AD not at full employment
positive output gap - actual growth above potential growth response AD high by long overtime by workers and machines worker continously no repars but not sustained .
explain whole business cycle
business cycle is fluctuation in economic activity
1. upturn high AD high confidence high consumption lending high risk projects are undertaken optimistic about future employment rises
2. peak is develops positive output gap inflation and BOP problems
3. downturn is less cofidence less economic grwoth rate not optimistic about future prospects savings rise net investmnts fall
4. trough negative output gaps lack AD recesion or worse depression in which fall econmic growth last over years
causes of business cycle
- increase AD if firms optimistic and confidence future high investments injection to circular flow multiplier accelators increases rate AD rises
- if money supply rises more than output then consumption and investment rises
- political cycles before election less tax high AD spending agter election adopt contractionary fiscal and mentary policy toreduce demand pull inflation of earlier actions
- fluctuation i n supply depend on supply side shocks like natural disaster, price oil rises covid .positve shocks are technoligical advances productivity COP eg AI productive capacity rises high amount
role of automatic stabilizers in business cycles
automatic stabilisers offset fluctiation in business cycles in upturn the rise in AD less rate by progressive tax rate on income corporation snd less spending on welfare benefits automatically as more people are i employemnt . an in recession icrease welfare benefits and reduce tax rate to lower rate of fall of AD
policy prmotote actual econmic growth rate
- to reduce negative output gap expansionary fiscal and monetary policy ex less tax more disposable income spend more encourge firms to expand if spare capacity
BUT if they are concerned about the future economic prospects not spend more government could underestimate value of multiplier cause demand pull inflation
policies for potential growth
increase AS by supply side policies like govt give subsidies for train produtiivity rises porctive potential rises
BUT skills may not be needed in future
but increase in spending also leads to solve actual and potential
explain inclusive econmic growth
- its must be distributed fairly everyone must get higher incomes and improvement in healthcare
2.also create opportunites for all job opportunities eg better working coditions live safely
impact of econmic grwoth on equity and equality
iceland had econ grwoth less gender and income inequality
1. but econ growth causes some industries to close others to expand if worker occupational geo immobile it causes uemployment
2. it widens pay gap in 1965 US top pay 20 times more avg full time workers in 2020 its 320 times greater in between 2010 and 2019 real wage didnt change avg worker even though econmic growth increased by 33% . high purchasing power excutives .in this time gig economy higher insecure job no right no gurentee hours
policies inclusive
- redistribute by progressive tax and trasfer payments
- access education must be there
3.high NMWR - anti discriminate law
5.trnasport better for geo immobility less
6.trade union to pretoect rights - laws against child labor so vulnerable group not exploited
explain sustainable econ growth rate
econ growth doesnt threaten future generations ability experience econ growth
it requires balane of social enviromental and economic obj .in social some dont have access housing healthcare edcuation this threatened ability to produce at higher output
use it benefits resources
use it 1. SR economic growth as hunting animals cut trees in rainforest increase gas from gas field creates job increase output
2. exported BOP better
3.high output increases tax revenues used on welfare education further econ growth
BUT
why conserve resources
if u conserve it rainforests, wildlife encourages tourists
2. helps enviroment absorb C02
3. future generation sell high prices
Factors whether to conserve or use
- if the resource has demand that is not sustained in future u can use it now esp non renewable as revenue earned could be spend on expanding other industries
- its advisable to conserve if no compartive advantage in production ex country has gold deposits expensive extract now but in situation debt issues can use it
impact of economic growth on environment
- econ growth climate change primary sector more livestock methane gas, more fishing fish stocks less, clean water livestock scarcity, crops need fertiser chemicals
- high greenhouse gas as secondary production like burning fossil fuels coal for power steel plants C02
- global warming tertiary sector tourism ex has flights greenhouse gasses natural areas coral reef destroyed
to access vehicles pollution high income more shopping plastic landfill oceans
policy less econ growth impact on pollution
- subsidies cleaner sources of energy like wind power planting of more trees to absorb carbon dioxide but opp cost
- nudge theory Provide information on the damage that certain activities, such as
dumping waste into the sea, can cause the environment.
3.legislation to ban or restrict the production For example, a number of
countries have banned the sale of plastic shopping bag but cost of enforcing - Tax firms that create pollution. This is based on the polluter pays
principle as it turns external costs into private costs. It has the
potential to move a market closer to its socially optimum level of
output. Some of the finance raised can be used to compensate those
who have suffered. There is a risk, however, that a tax may be set
too high or too low as it can be difficult to assess the cost to the
environment. The tax may also be regressive - Use pollution permits This involves setting limit on the level of pollution allowed and then selling licences to
firms to pollute up to this limit. Pollution permits can be bought and sold. Over time, the limit can be reduced and those firms that pollute below the limit can sell some of their licences to other firms. As a result, cleaner firms should gain a cost advantage and so capture a larger share of the market. Some of the funds raised can be used to fund the development of cleaner energy
