Economic Growth Flashcards
What is a production possibility frontier?
Graph that shows the maximum combination of output for 2 types of product that the economy can produce using all it’s available resources efficiently.
What are the factors of production?
Capital, enterprise, labour, land
What can a PPF represent on it’s graph?
Economic growth, opportunity cost, maximum/minimum production.
What is Opportunity cost?
Measure of the cost of obtaining a good in terms of the quantity of other good forgone
What is long term economic growth?
An increase in the productive capacity of an economy
why is the PPF sometimes a curve?
Due to the effect of specialisation. Specialised workers will find it harder to change to production.
What is GDP?
Gross domestic product. The total value of all good and services produced in an economy.
What is the equation for real GDP?
(Nominal GDP x base year price index)/
Current year price index
What’s the difference between nominal and real GDP?
Real GDP is adjusted for inflation so gives a more accurate view of the economy.
What are the 3 ways of measuring GDP?
National output, national expenditure, national income.
What is short term economic growth?
An increase in real GDP
What is the economic cycle?
Recession, slump, recovery and boom.
What is a recession?
Two consecutive quarters of negative GDP growth.
What’s a boom?
High level of economic growth that can cause inflation
What are the disadvantages of GDP as a measure of growth?
No breakdown of regions, doesn’t distinguish between production, undeclared activity not included (e.g informal sector, free care), environmental damage not accounted for, human error
Advantages of GDP to measure growth
Simple (1 number), helps govt set targets an policies, no other comparable method, easy to compare.
What are the benefits of growth?
Increases living standards, employment, confidence and tax revenues.
What are the costs of growth?
Environmental impact, sustainability, not everyone benefits, unbalanced growth = inflation and trade deficit increase, increased working hours/stress
What does growth depend on?
The cause, rate and duration of the growth. Government view point.
