Economic Growth Flashcards
Macro policy of sustainable EG
Growth and development that meets the needs of the present without compromising the ability of future generations to meet their needs
Why EG is measured
Indicate amount of goods and services available
Assess quality of life
Inform gov decision making
Compare with other economies
Difficulties measuring EG
Population Income inequality is uneven Informal sector has no official account ER problems Doesn't measure quality of goods and services Impacts on standards of living
SREG causes
Increased AD
Increased SRAS
LREG causes
Supply side factors (increase productive potential) Increase quantity of FoP Increase quality of FoP Increase LRAS Gov creating stability in the economy
SREG PPC
Move from below PPC (underconsumption) to on PPC
SREG AD/AS
SRAS shift to right
Decrease P
Increase Y
LREG PPC
Outward shift of PPC
Stay on original PPC because potential to grow
LREG AD/AS
LRAS shift to right (Keynes) No effect/Increase/Decrease P No effect/Increase/Increase Y (Classical) Decrease P Increase YFE
EG benefits
Increased demand for labour = decreased umemployment = increased income
Increase material standard of living
Firms increase profit = increased investment = increased prod potential
Improve fiscal position (increase tax/decrease spending)
Improved technology = increased efficient production = good for environment
EG costs
Income inequality
Increase wages = increased work = increased stress
Create BoP deficit (increase spending on M)
Inflation caused
Negative externalities bc industrial expansion
Finite resources used up (threaten living standards)
Advantages of a recession
Force firms to get rid of inefficiencies (+ve in long run)
Firms selling inferior goods benefit
Disadvantages of a recession
Firms close down = lost jobs = unemployment
Stop hiring new employees (hard hitting to young people)
Increase G/tax revenue/borrowing = budget deficit
Decrease I = possible decrease in long run prod potential
