Economic growth and the economic cycle

Question 1

recession d

Answer 1

two consecutive quarters of negative economic growth

Question 2

economic growth d

Answer 2

an increase in the real output of the economy

Question 3

long-term growth rate d

Answer 3

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

Question 4

GDP per capita d

Answer 4

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

Question 5

production possibility frontier (PPF) d

Answer 5

a diagram of a simplified economy showing the maximum combination of products that can be produced given maximum productive efficiency

Question 6

actual growth d

Answer 6

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

Question 7

potential growth d

Answer 7

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

Question 8

output gap d

Answer 8

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

Question 9

trend rate of economic growth d

Answer 9

the long-run average increase in GDP

Question 10

economic cycle d

Answer 10

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

Question 11

supply side policies d

Answer 11

a range of measures designed to increase aggregate supply

Question 12

what does long-term economic growth require

Answer 12

shift of aggregate supply

Question 13

how is long-term economic growth generated

Answer 13

an increase in the quantity and/or quality of the factors of production

Question 14

what is likely to be a problem for countries with rapidly growing populations

Answer 14

increasing population increases GDP but not GDP per capita so suffer falling living standards

Question 15

activity rate / participation rate d

Answer 15

the proportion of the population of working age in a job or actively seeking work

Question 16

occupational immobility d

Answer 16

the difficulties faced by workers wishing to change occupations due to not having the required skills or qualifications

Question 17

labour productivity d

Answer 17

output per worker per hour

Question 18

what are the advantages of economic growth

Answer 18

rise in standard of living
increased tax revenue for merit goods
reduce poverty
reduce negative environmental spillover effects

Question 19

what are some disadvantages to economic growth

Answer 19

negative externalities

inequality

Question 20

gross domestic product d

Answer 20

output produced by resources in the UK

Question 21

gross national product d

Answer 21

output produced by resources within the UK, plus net property income from abroad

Question 22

national income d

Answer 22

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

Question 23

problems with GDP as a measure

Answer 23

doesn’t take into account quality, distribution of income, ignores amount and value of leisure, no account of what is produced

Question 24

why is GDP bad because it doesn’t take account of what’s being produced

Answer 24

USA spends on defense and prisons which may not contribute to happiness

Question 25

purchasing power parity d

Answer 25

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

Question 26

problem with using national income to compare countries

Answer 26

importance of non-monetised activity | assumes correct exchange rates from local currency into dollars

Question 27

human development index (HDI) d

Answer 27

a measure of economic welfare based on the average of three indicators : standard of living life expectancy educational attainment

Question 28

what is the maximum value for HDI

Answer 28

1, closer you are, the better

Question 29

human poverty index d

Answer 29

``` a measure of economic welfare based on 4 basic dimensions of human life : longevity knowledge economic provisioning social inclusion ```

Question 30

misery index d

Answer 30

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

Question 31

sustainability (of economic growth)

Answer 31

economic growth which does not impose costs on future generations

Question 32

what are the 3 main threats to sustainability

Answer 32

exhaustion of resources environmental damage global warming

Question 33

what are the economic costs of global warming

Answer 33

rising sea levels leading to loss of agricultural land increasing storm damage structural adjustment problems for countries heavily involved in agriculture

Question 34

balance of payments d

Answer 34

a record of the financial transactions over a period of time between a country and its trading partners

Question 35

what happens during a recovery

Answer 35

economic activity increases | optimism about future and consumer spending and investment increase

Question 36

what happens during a boom

Answer 36

unemployment low, economic growth high but eventually it is not possible for output to meet increasing levels of aggregate demand

Question 37

what happens during a downturn

Answer 37

high inflation leads to reduced international price competitiveness, firms make output cut backs or go out of business, fall in economic growth and rising unemployment reduce confidence

Question 38

what happens during a recession

Answer 38

aggregate demand falls unemployment accelerates eventually households and firms have to increase spending to replace capital equipment / TVs / cars Government spending will inadvertently rise

Question 39

demand-pull inflation d

Answer 39

inflation resulting from too much demand in the economy, relative to supply capacity

Question 40

accelerator theory d

Answer 40

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

Question 41

what are some explanations of the economic cycle

Answer 41

political cycles outside 'shocks' multiplier / accelerator model speculative 'bubbles'

Question 42

multiplier effect d

Answer 42

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

Question 43

multiplier / accelerator model

Answer 43

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