Economic Growth and Cycle Flashcards
What is economic growth?
The increase in actual output or income (real GDP) of an economy over time.
What is actual growth?
The rate the economy is growing at
What is potential growth?
It measures how much the economy could grow if all of its resources were full employed
What is the output gap?
It measures the difference between actual and potential growth
What happens when the output gap is negative?
The economy is producing within the PPF
What happens when the output gap is positive?
The economy is producing outside the PPF
What are examples of economic growth?
Training for employees, promoting mobility, tax incentives and increasing retirement age
How could the government promote potential growth?
They could use supply-side policies
What is an important source of economic growth?
Higher productivity
What is productivity?
Total output / total input
What are the determinants of higher productivity?
Investment, infrastructure, management, training and education and cost of labour
What is R&D used for?
Developing new products, new ways of doing things and to help firms to be more productive
What does R&D lead to?
Higher productivity, reduced costs and higher quality products
What are the problems of economic growth?
Stress, environment, health, inequality and the political system
What is the economic cycle?
It shows the pattern of economic growth that tends to occur in economies over time
What are the stages of the economic cycle?
Boom, recession, slump and recovery
What is the boom stage?
Period of economic growth
What is the recession stage?
Producing less that the period before
What is the slump stage?
Depression
What is the recovery stage?
AD begins to increase again
What are the causes of the economic cycle?
Expectations, stock levels and government policy
What are the leading indicators of the economic cycle?
Consumer confidence, recruitment advertising, mortgage applications, share prices and applications for building permits
What are the coincident indicators of the economic cycle?
Real GDP
What are the lagging indicators of the economic cycle?
Unemployment
