Economic Growth Flashcards
What is economic growth?
Economic growth means an increase in real GDP - this leads to higher output and higher average incomes
How does economic growth occur?
Economic growth occurs due to an improvement in the quantity or quality of one of the factors of production
Name four benefits of economic growth
- Higher disposable incomes (living standards can increase)
- Higher employment
- Higher profits for firms (encouraged to Invest more)
- Fiscal Dividend for Government (Increased in Tax Revenues)
Why would Income Tax increase if the economy increased?
Because households are earning more income
Why would VAT increase if the economy increased?
Because Incomes will be spent on goods and services
Why would Corporation Tax increase if the economy increased?
Because firms are making more profits
Why would Tariff Revenues increase if the economy increased?
Because Households are spending on Imports from Abroad
Name four costs of economic growth
- Inflation
- Income Inequality
- Environment
- Current Account Deficit
What is Actual growth?
The percentage increase in a country’s real GDP and it is usually measured annually. It is caused by increases in AD
What is Potential growth?
is the long run expansion of the productive potential of an economy. It is caused by increases in AS
How does Export led growth occur?
Export led growth occurs when countries open up their economies to the international market for example China
How does a negative output gap occur?
occurs when the actual level of output is less than the potential level of output
How does a positive output occur?
occurs when the actual level of output is greater than the potential level of output
Why is it difficult to measure output gaps
- The structure of the economy often changes, which means estimates may not always be accurate
- Changes in the exchange rate might offset some inflationary effects of a positive output gap
- Data is not always reliable
What is the business cycle
this refers to the stage of economic growth that the economy is in
What is the recovery stage
When real output is increasing when there are periods of economic growth
what is a boom
the boom is when economic growth is fast, and it could be inflationary or unsustainable
What happens in a recession
During recessions, the real output in the economy falls, and there is negative economic growth
What is a recession
negative economic growth over two consecutive quarters
What are the characteristics of a boom
- High rates of economic growth
- Near full capacity or positive output gaps
- (Near) full employment
- Demand-pull inflation
- Consumer and firms confidence
- Government budgets improve
What are the characteristics of a recession
- Negative economic growth
- Lots of spare capacity and negative outputs gaps
- Demand-deficient unemployment
- Low Inflation rates
- Government budgets worsen
- Less confidence amongst consumers and firms
What are the benefits of economic growth for consumers
- The average consumer incomes increases
2. Consumers feel more confident in the economy which increases consumption and leads to higher living standards
What are the costs of economic growth for consumers
- Those on low fixed incomes might feel worse off if there is high inflation and inequality could increase
- There is likely to be higher demand-pull inflation, due to higher levels of consumer spending
- Law of diminishing returns
What are the benefits of economic growth for firms
- Firms might make more profits, which in turn increases investment
- Higher levels of investment could develop new technologies to improve productivity
- If there is more economic growth in exports markets, firms might face more competition, which will make them more productive and efficient
