Economic Growth and Economic Cycle Flashcards
Define Recession
negative economic growth for over two consecutive quarters
Define Economic Growth
An increase in the real output of the economy over a period of time as measured by GDP
Define Long term growth rate
the average rate of economic growth sustained over a period of time
Define Real Gross Domestic Product (GDP) per capita
the total output of the economy in a year, divide by the size of the population, adjusted for inflation
Actual growth
an increase in the productive potential of the economy matched by an increase in demand
Potential Growth
an increase in the productive potential of the economy, not necessarily matched by demand
Output gap
the difference between the actual level of GDP and the productive capacity of the economy
Trend Rate of Economic Growth
The long run average icrease in GDP
Economic Cycle
the cyclical pattern of short term fluctuations in GDP from year to year
supply side policies
A range of government measures designed to increase aggregate supply
Gross domestic product (GDP)
output produced by resources within the UK
Gross national product (GNP)
output produced by resources within the UK, plus, net property income from abroad, minus depreciation of the nation’s capital equipment
National Income
Output produced by resources within the UK, plus net property income from abroad, minus depreciation of the nation’s capital equipment
Non- monetised Sector
valuable economic activity where no money changes hands
Purchasing power parity
exchange rated that take into account how much a typical basket of goods in one country costs compared to another country
Human Development Index
a measure of economic welfare based on average of three indicators - standard of living, life expectancy and educationla attainment
Human Poverty Index
A measure of economic welfare based on four basic dimensions of human life: longevity, knowledge, economic provisioning and social inclusion
Measuring Domestic Progress
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.
Misery Index
a measure of economic welfare constructed by adding the unemployment rate to the inflation rate
Multiplier effect
a change in one of the components of aggregate demand leads to greater overall change in natonal income
Accelerator theory
the theory that the level of investment is related to past changes in national income
Multiplier/accelerator model
a model which describes how the interaction of the accelerator theory and multiplier effect lead to changes in national income.
The features of a Boom
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
The features of a recession
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
Slump/depression
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
Recovery
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.
Endogenous Models
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
Exogenous models
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
Benefits of Economic growth
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
Costs of Economic growth
Inflation Risks
The environment
Inequalities of income and wealth
Regional disparities
Standard of Living
is a measure of our material welfare
Output Gap
The difference between the actual level of GDP and the productive potential of the economy
Positive Output Gap
When real GDP is greater than trend GDP
Negative Output Gap
When real GDP is below trend GDP
