Economic Growth Flashcards

1
Q

Economic growth

A

Economic growth is a long-term expansion of the productive potential of the economy

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2
Q

Growth drivers

A

Growth in physical capital stock - leading to rise in capital per employee (capital deepening)
Growth in size of the active labour force available for production
Growth in quality of labour (human capital)
Technological progress & innovation driving productivity improvements i.e. higher GDP per hour worked
Institutions - including maintaining rule of law, stable democracy, macro-economic stability
Rising demand for goods & services - either led by domestic demand or from external trade

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3
Q

Actual growth

A

Increase in real GDP

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4
Q

Real GDP

A

Output of an economy, with effects of inflation removed

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5
Q

Potential growth

A

Amount by which a country could increase its production if all resources were used efficiently

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6
Q

Output gap

A

Difference between actual GDP and Potential GDP

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7
Q

Sustainable growth

A

Highest rate of growth which does not compromise the welfare of future generations

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8
Q

Economic cycle

A

Downward & upward movement of GDP around its long-term growth trend

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9
Q

Characteristics of a boom

A

High employment, increasing living standards, increased investment, generation of wealth, BUT sometimes inflation, widening inequality, increased negative externalities

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10
Q

Characteristics of a recession

A

High unemployment, underemployment, lower or not increasing standards, low investments, sometimes lower inflation, narrowing inequality, decreased negative externalities

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11
Q

Benefits of growth (5)

A
  1. Increased incomes and living standards
  2. More employment & investment (sometimes less inequality)
  3. Governments benefit in a boom- less transfer payments, increased tax revenue
  4. Current and future living standards improve
  5. Accelerator effect- rising growth stimulates new investment- better growth attracts FDI
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12
Q

Costs of growth (5)

A
  1. Risks of higher inflation and interest rates
  2. Environmental effects
  3. Inequalities of income and wealth
  4. Balance of payments problems
  5. Opportunity cost to growth
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