Economic Growth And Sustainability Flashcards
Q: What is actual growth in economics?
A: Actual growth, or short run economic growth, refers to the increased use of existing resources, leading to an increase in output from point X to Y on the PPC graph. It can also be shown as an increase in AD on the AD/AS graph, using up spare capacity in the economy.
Q: What is potential growth?
A: Potential growth, or long run economic growth, is the increase in an economy’s capacity to produce goods and services, represented by an outward shift in the PPC or an increase in the LRAS on the AD/AS graph.
Q: What characterizes a positive output gap?
A: A positive output gap occurs when an economy produces more than its maximum potential output (Ye). It indicates temporary overuse of resources, which is unsustainable due to eventual need for machine servicing and reduced worker hours.
Q: What is a negative output gap?
A: A negative output gap occurs when actual output is below the economy’s full employment level (Yfe), indicating underused resources and unemployment.
Q: What are the main phases of the business cycle?
A:
Peak: High consumer spending, business confidence, and low unemployment.
Recession: Falling spending, lower profits, and increasing unemployment.
Trough: Declining GDP, high unemployment, and low spending.
Expansion: Recovery with increased spending, investment, and decreasing unemployment.
Q: How do interest rates influence the business cycle?
A: Lower interest rates reduce borrowing costs, which increases consumer spending and economic growth. Higher interest rates reduce spending and investment, potentially leading to a recession.
Q: What is the wealth effect?
A: The wealth effect refers to changes in consumer spending based on asset value changes. Rising house prices boost spending, while falling prices reduce it.
Q: What are automatic stabilisers and their role?
A: Automatic stabilisers are government spending and taxation mechanisms that adjust automatically to offset fluctuations in GDP, such as increased unemployment benefits during a recession.
Q: What policies can promote economic growth?
A:
Investment in infrastructure
Development of technology
Increasing human capital through education
Higher savings rates
Expansionary fiscal and monetary policy
Q: What is inclusive economic growth?
A: Inclusive economic growth ensures that the benefits of growth are widely distributed across society, supported by policies like progressive taxes, access to education, and anti-discrimination legislation.
Q: What is sustainable economic growth?
A: Sustainable economic growth meets present needs without compromising future generations, focusing on efficient resource use, environmental protection, and improving living standards.
Q: How can governments mitigate the environmental impact of economic growth?
A:
Subsidize cleaner energy sources
Legislate against harmful products
Implement pollution taxes
Use pollution permits to limit emissions
