Economic Growth and Cycle Flashcards
What is long run economic growth? Examples?
=shown by an outward movement of the economy’s production possibility frontier, increasing potential output
•expansion of supply of factor inputs
•improvements in technology
•increased factor productivity
QQFOP (quality+quantity of factors of production)
Economic growth in the UK/China/US? GDP
U.K.= 0.5% China= 6.7% US= 2%
Short term economic growth?
Examples?
=an increase in the output that results from making use of spare capacity and unemployed labour (economic recovery)
•AD^ C+I+G+(X-M)
What are some advantages of economic growth?
- Rise in standard of living+potential to eliminate poverty
- raises tax revenue without raising tax rates
- provision of public and merit goods
What are some disadvantages of economic growth?
- gap between rich and poor increase=higher relative poverty
- negative externalities e.g pollution
- depletion (reduction in number) of raw materials
- general expectation of wanting more
Some ways of measuring the standard of living?
- increased well being of the population
- increased economic welfare of population
- increase in per capita rate of consumption of goods/services
Ways to measure the size of an economy?
NI (National Income)= the monetary value of the flow of output of goods and services produced in an economy over a period of time
- GDP (Gross Domestic Product)= output produced by resources in the UK
- GNP (Gross National Product)= output produced by resources within UK+net property income from abroad (renting holiday homes)
Explain the economic cycle
•trend rate slopes upwards
•actual growth fluctuates=
Boom, downturn, (trend rate line), recession, slump, ^recovery (trend rate line), boom
What is the definition of a recession?
A recovery?
=2 consecutive quarters of negative economic growth
=2 consecutive quarters of positive economic growth
What happens in a boom?
- positive output gap
- inflation pressures= rises
- economic growth rises
- balance of payments deficit rises
What happens in a slump?
- negative output gap
- growth falls
- inflation falls
- balance of payment deficit rises
What is the def of standard of living?
The degree of wealth and material comfort available to a person or community
Measures of standard of living?
- HDI (human development index)= life expectancy at birth+mean and expected years of schooling+GNI per capita
- ISEW (index of sustainable economic welfare)= environmental costs e.g pollution, commuting costs, noise, urbanisation
- Misery Index= employment rate+inflation rate
Highest standard of living?
Lowest?
Highest= Norway (Switzerland+Australia) Lowest= Burundi, Chad, Central African Republic
Norway= $25 minimum wage
Political cycles as an explanation for the econ cycle?
MPs engineer a boom in economic cycle to gain votes
Multiplier effect?
Accelerator effect?
= change in AD leads to greater overall change in national income
= businesses predictions effects their investment, impacting national income
What are exogenous shocks?
Shocks outside of AD
C+I+G+(X-M)
What are demand-side shocks?
Examples?
=shocks effecting rate of growth of demand in UK+other countries
•capital investment boom
•pre-election gov spending spree
•signif rise or fall in exchange rates
What are supply-side shocks?
Examples?
=shocks affecting costs and prices in different countries which could effect SRAS or LRAS
•changes in oil prices or other energy costs
•changes in commodity prices
•natural disasters
•technological breakthroughs
Real life examples of shocks?
Demand-side=
•credit crunch
•sub-prime US banking crisis
Supply-side=
•9/11 airline industry unemployment
•Shale fracking production= reduces oil prices
What is the definition of economic growth?
An increase in the potential output an economy can produce.
What are the advantages and disadvantages of standard of living/ size of an economy measurements?
✔️able to draw patterns between countries
✔️some include many factors that are able to give an idea of economy
✖️reductionist= standard of living focusses on material wealth, ignores psychological
✖️GDP ignores social welfare+distribution of income and wealth
