Economic Growth and Sustainability

Question 1

actual econ growth

Answer 1

increase in real GDP or SR growth resulting from greater utilisation of existing resources or spare capacity

shown by shift from point inside PPC to point ON the PPC, or by a shift in AD towards YFE

Question 2

link economic growth to development

Answer 2

both actual and potential growth is needed for an economy to experience ST increases in output and income but to also be able to sustain these increases in the long run with greater quantity and capital of FOP

Question 3

potential econ growth

Answer 3

increase in productive capacity of economy, or LR growth, which allows the economy to continue growing

shown by outward shift of PPC or LRAS curve

Question 4

+VE output gap

not referencing circular flow

Answer 4

when actual output is above potential output

Question 5

-ve output gap

Answer 5

when actual output is below potential output

Question 6

why is a positive output gap unsustainable?

Answer 6

potential output is the level of output that an economy can sustain in the LR

in the short run, output may be beyond this level because in response to higher AD, workers may be asked to work overtime and machines can be worked continuously without maintenance

however this is unsustainable because eventually workers will burn out and machines will break down

Question 7

business cycle

Answer 7

the fluctuations in economic activity around the trend rate of actual economic growth

the stages are:

recovery
boom
downturn
recession

Question 8

causes of the business cycle

Answer 8

1. AD fluctuations
2. AS fluctuations

Question 9

examples of causes of AD fluctuations

Answer 9

• changes in business confidence - multipler and accelerator reinforce each other (in reverse too) –> think UK hike in corp tax from 19 to 25%
• money supply growing faster than output
• political cycles -

Question 10

examples of causes of AS fluctuations

Answer 10

• negative SS shocks - e.g. global rise in oil and food prices at start of Russia-Ukraine conflict due to blockade of Black Sea port; worsened by India’s ban on rice exports. India and other importers face cost-push inflation due to poor weather conditions
• positive SS shocks - e.g. tech advances improving productivity

*** unrelated but use the first point to talk about food insecurity and poverty being worsened - developmental outcmes hit by uncontrollable supply side shocks

Question 11

role of automatic stabilisers in relation to the business cycle

Answer 11

they offset fluctuations in economic activity by reducing rises in GDP during a boom and reducing the fall in GDP during recession

do this using more/less progressive income tax and more/less welfare benefits to alter AD

Question 12

define recession

Answer 12

reduction in GDP for 2 successive quarters

Question 13

what happens during a recovery

Question 14

what happens during a boom

Question 15

what happens during a downturn

Question 16

what happens during recession