Economic Growth and Economic Cycle

Question 1

Define Recession

Answer 1

negative economic growth for over two consecutive quarters

Question 2

Define Economic Growth

Answer 2

An increase in the real output of the economy over a period of time as measured by GDP

Question 3

Define Long term growth rate

Answer 3

the average rate of economic growth sustained over a period of time

Question 4

Define Real Gross Domestic Product (GDP) per capita

Answer 4

the total output of the economy in a year, divide by the size of the population, adjusted for inflation

Question 5

Actual growth

Answer 5

an increase in the productive potential of the economy matched by an increase in demand

Question 6

Potential Growth

Answer 6

an increase in the productive potential of the economy, not necessarily matched by demand

Question 7

Output gap

Answer 7

the difference between the actual level of GDP and the productive capacity of the economy

Question 8

Trend Rate of Economic Growth

Answer 8

The long run average icrease in GDP

Question 9

Economic Cycle

Answer 9

the cyclical pattern of short term fluctuations in GDP from year to year

Question 10

supply side policies

Answer 10

A range of government measures designed to increase aggregate supply

Question 11

Gross domestic product (GDP)

Answer 11

output produced by resources within the UK

Question 12

Gross national product (GNP)

Answer 12

output produced by resources within the UK, plus, net property income from abroad, minus depreciation of the nation’s capital equipment

Question 13

National Income

Answer 13

Output produced by resources within the UK, plus net property income from abroad, minus depreciation of the nation’s capital equipment

Question 14

Non- monetised Sector

Answer 14

valuable economic activity where no money changes hands

Question 15

Purchasing power parity

Answer 15

exchange rated that take into account how much a typical basket of goods in one country costs compared to another country

Question 16

Human Development Index

Answer 16

a measure of economic welfare based on average of three indicators - standard of living, life expectancy and educationla attainment

Question 17

Human Poverty Index

Answer 17

A measure of economic welfare based on four basic dimensions of human life: longevity, knowledge, economic provisioning and social inclusion

Question 18

Measuring Domestic Progress

Answer 18

a measure of economic welfare designed to reflect progress in quality of life and progress towards a sustainable economy by factoring in the social and environmental costs of grwoth, and benefits of unpaid work such as household labour.

Question 19

Misery Index

Answer 19

a measure of economic welfare constructed by adding the unemployment rate to the inflation rate

Question 20

Multiplier effect

Answer 20

a change in one of the components of aggregate demand leads to greater overall change in natonal income

Question 21

Accelerator theory

Answer 21

the theory that the level of investment is related to past changes in national income

Question 22

Multiplier/accelerator model

Answer 22

a model which describes how the interaction of the accelerator theory and multiplier effect lead to changes in national income.

Question 23

The features of a Boom

Answer 23

High levels of consumer spending, profits and investment
Prices and costs also tend to rise faster
unemployment tend be low, economy grwos at beyond full employment, leading to a ‘tight’ labour market
Wages will rise
M > X to satisfy the rising level of D - leading to a trade deficit

Question 24

The features of a recession

Answer 24

Falling levels of consumer spending and confidence means lower profits for businesses - which start to cut back on investment
Spare capacity increases
Rising unemployment
Tax revenues fall , government spending on benefits increases
Wage demands moderate
Spending on imports tend to moderate
Inflationary pressures ease

Question 25

Slump/depression

Answer 25

Economic activity will tend to be very low
very weak consumer spending and business investment; many business failures; rapidly rising unemployment; prices may start falling - deflation

Question 26

Recovery

Answer 26

things start to get better, income and output increase
consumers begin to increase spending
Businesses feel a little more confidenct and start to invest again, if they feel the recovery will be sustained
it takes time for unemployment ro stop growing.

Question 27

Endogenous Models

Answer 27

This cycle try to explain cyclical fluctuations in terms of factors which lie within the economic system suggesting that, even if there was no shocks to an economy, there would still be variations in the growth of income. spending and out

Question 28

Exogenous models

Answer 28

of the cycle argue that cycles can be started by a range of demand side or supply side shocks from outside the economic system which then have ripple effect

Question 29

Benefits of Economic growth

Answer 29

Improvements in living standards
More jobs
the accelerator effect of growth on capital investment
Greater business confidence
The fiscal dividend to the government 
Potential environmental benefits

Question 30

Costs of Economic growth

Answer 30

Inflation Risks
The environment
Inequalities of income and wealth
Regional disparities

Question 31

Standard of Living

Answer 31

is a measure of our material welfare

Question 32

Output Gap

Answer 32

The difference between the actual level of GDP and the productive potential of the economy

Question 33

Positive Output Gap

Answer 33

When real GDP is greater than trend GDP

Question 34

Negative Output Gap

Answer 34

When real GDP is below trend GDP