economic growth

Question 1

what is economic growth defined as?

Answer 1

economic growth is the annual increase in productive potential of an economy

Question 2

what does economic growth measure in theory?

Answer 2

in theory, economic growth measures the increase in productive capacity of an economy

Question 3

how is the productive capacity of an economy shown?

Answer 3

the productive capacity of an economy is shown using the production possibility frontier (PPF)

Question 4

what is the problem with the production possibility frontier as a measure of economic growth?

Answer 4

the production possibiliuty frontier does not measure economic growth precisely

Question 5

what is used instead of the production possibility frontier to measure economic growth?

Answer 5

percentage change in GDP over a period of time is used to measure economic growth instead

Question 6

what does GDP stand for?

Answer 6

GDP stands for gross domestic product

Question 7

what is GDP?

Answer 7

GDP is the total value of goods and services produced in a year within an economy

Question 8

what is output measured in?

Answer 8

output is measured in monetary terms

Question 9

what is nominal GDP?

Answer 9

nominal GDP is the value of output at that year’s price level

Question 10

what is real GDP?

Answer 10

real GDP is nominal GDP adjusted to inflation

Question 11

what is the economic growth target in the UK?

Answer 11

the target for economic growth is 2.5% (not official)

Question 12

what are the two types of economic growth?

Answer 12

the two types of economic growth are short-run economic growth and long-run economic growth

Question 13

how does short-run economic growth arise?

Answer 13

short-run economic growth normally arises from increases in aggregate demand

Question 14

what does short-run economic growth lead to in terms of macroeconomic equilibrium?

Answer 14

short-run economic growth leads to a macroeconomic equilibrium at a higher level of real GDP

Question 15

how does long-run economic growth usually arise?

Answer 15

long-run economic growth arises from the factors that increase long-run aggregate supply

Question 16

how does an increase in LRAS happen?

Answer 16

an increase in LRAS usually happens due to the rise in the quality or quantity of inputs (the factors of production)

Question 17

what are inputs also known as?

Answer 17

inputs are also known as the factors of production

Question 18

what are increases in long-run growth caused by?

Answer 18

increases in long-run economic growth are caused by an increase in aggregate supply

Question 19

how can economic growth be shown?

Answer 19

economic growth can be shown using the economic cycle diagram, a AD/AS diagram and a PPF diagram

Question 20

how is short-run growth shown on a PPF?

Answer 20

short-run growth is shown on a PPF diagram as the outward movement of a point, while the PPF curve is fixed

Question 21

how is long-run growth shown on a PPF?

Answer 21

long-run growth is shown on a PPF diagram as the outward shift of the PPF curve from PPF to PPF1

Question 22

how is a positive output gap show on a PPF diagram?

Answer 22

a positive output gap is shown when the point is outside the PPF curve

Question 23

how is a negative output gap shown on a PPF diagram?

Answer 23

a negative output gap is shown when the point is inside the PPF curve

Question 24

what point would show an economy at full capacity?

Answer 24

a point on the PPF curve would show the economy at full capacity

Question 25

what is a boom?

Answer 25

a boom is a long period of high economic growth

Question 26

what is a recession?

Answer 26

a recession is where there are at least two consecutive quarters of negative growth

Question 27

what happens during a boom?

Answer 27

during a boom, aggregate demand is rising

which leads to a rise in price levels (inflation) and low unemployment

Question 28

what happens during a recession?

Answer 28

during a recession, aggregate demand is falling which leads to a fall in price levels and a rise in unemployment

Question 29

what happens during a recovery?

Answer 29

during a recovery, the economy begins to grow again

Question 31

what happens to economic growth during a recovery?

Answer 31

during a recovery, economic growth goes from negative economic growth to positive economic growth

Question 33

how is long-run economic growth shown on the economic cycle diagram?

Answer 33

long-run economic growth is shown by an increase in the trend rate of growth on the economic cycle diagram

Question 34

what is the trend rate of growth?

Answer 34

the trend rate of growth is the average rate of economic growth over a period of both economic booms and slumps

Question 35

what is a positive output gap?

Answer 35

a positive output gap is where the actual output is above the trend rate

Question 36

when does a positive output gap occur?

Answer 36

a positive output gap occurs when there is a boom

Question 37

what does a positive output gap mean?

Answer 37

a positive output gap means that there is an upwards pressure on inflation and low unemployment as resources are being fully used or overused

Question 38

what is a negative output gap?

Answer 38

a negative output gap is where the actual growth is below the trend rate

Question 39

when does a negative output gap occur?

Answer 39

a negative output gap occurs when there is a recession

Question 39

what does a negative output gap mean?

Answer 39

a negative output gap means there is a downwards pressure on inflation and higher unemployment as resources will be unused or underused

Question 39

what happens to the output gap during a recovery?

Answer 39

during a recovery, the output gap goes from a negative output gap to a positive output gap