Economic Growth Flashcards
What are the four main macroeconomic objectives?
- Strong economic growth
- Reducing Unemployment
- Keeping Inflation Low
- Equilibrium in the balance of payments
What are the strong economic growth objectives?
- Governments want economic growth to be high, but not too high ( unsustainable )
- Economic growth will improvement the standard of living
What are the govt inflation objectives?
• In the UK govt aims for inflation of 2%
what are the govt’s unemployment objectives?
- Governments aim to reduce unemployment and move towards full employment
- If more people are employed , then the economy will be more productive, AD will increase as more people will have a greater income
What are the govt’s equilibrium objectives?
• Governments want equilibrium in the branch of payments, they want earnings from exports and other inwards flows of money to balance the spending on imports and outward flows of money
What are some other examples of government objectives?
- Balancing of budget
- Environment Protection
- Achieve greater income equality
What is economic growth?
An increase in the productive potential of the economy
How is economic growth measured in the short run?
Measured by the percentage change in real GDP, this is actual/real growth.
What are increases in actual growth usually caused by?
An increase in AD, they can also be caused by increases in AS.
What is long run growth?
Potential growth
What is long run growth caused by?
• Increase in the capacity or productive potential of the economy.
When does long run growth occur?
Long run growth occurs when a there is a rise in the quality or quantity of inputs ( factors of production ), more advanced machinery or a more highly skilled labour force.
How is the long run growth shown?
• An increase in the trend rate of growth.
What is the trend rate of growth?
Average rate of economic growth over a period of both economic booms and slumps
Why does actual rate of growth not match trend?
Trend rises smoothly rather than fluctuating.
