economic growth Flashcards
define economic growth and how is it measured
a long-term expansion of productive potential in the economy
measured by percentage changes in real GDP
name and explain the stages of an economic cycle
boom:
time when GDP is rapidly rising
low unemployment
high inflation
recession:
time when GDP is falling
higher unemployment
falling inflation
slump:
time when GDP is rapidly falling
high unemployment
low inflation
growth:
time when GDP is rising
lower unemployment
rising inflation
causes of economic growth
improvements in:
the quantity of factors of production
the quality of factors of production
the efficiency of factors of production
the flexibility of the market for factors of production
improvements in technology
government policies
benefits of economic growth for households, government and firms
households:
higher living standards, GDP per capita rises - lifting people out of poverty, increased job opportunities, reducing inequality.
government:
increased tax revenues, reduced spending on welfare payments
firms:
benefit from the accelerator effect, where higher economic growth stimulates new investment opportunities
costs of economic growth
trade-offs with other macroeconomic policy objectives
increased economic growth may lead to increased inflationary pressures
may also cause more imports to be bought and less exports to be sold, worsening the balance of payments
a lack of sustainability, more negative externalities such as pollution and waste, increased extraction of finite resources may lead to resource depletion
an increase in inequality, the increase in economic growth may only go to a few people, rather than everyone
