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Economics > Economic Growth & Economic Cycle - Macro > Flashcards

Economic Growth & Economic Cycle - Macro Flashcards

1
Q

What is short run economic growth?

A

Brings idle resources into production and takes up the slack in the economy

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2
Q

What is long run economic growth?

A

When the productive capacity of an economy increases
The trend rate of ‘growth of real national output in an economy’

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3
Q

What is an output gap?

A

The difference between the actual level of output and the potential level of output

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4
Q

What are the effects of a negative output gap?

A
  • puts downward pressure on inflation
  • causes a lot of spare capacity
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5
Q

What are the causes of a positive output gap?

A
  • resources being used beyond the normal capacity (e.g. labour working overtime)
  • an increase in productivity (this puts an upward pressure on inflation)
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6
Q

What is the economic cycle

A

The process that economies forever go through of boom, slowdown, recession and recovery

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7
Q

What is recovery?

A

When an economy is progressing past a recession and beginning to expand again

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8
Q

What is boom?

A

When the level of real output becomes greater than the trend level of output

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9
Q

What is slowdown?

A

The phase before a recession when an economy experiences very little growth

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10
Q

What is a recession?

A

Negative colonic growth over two consecutive quarters
It is the lowest point within an economic growth cycle

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11
Q

What does the government usually do during a recession?

A
  • increase spending to try and stimulate the economy (e.g. more welfare payments, cutting taxes)
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12
Q

What is a wealth effect?

A

When consumer confidence and spending increase

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13
Q

How is economic growth measured?

A

By the percentage annual change in GDP

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14
Q

What is the trend growth rate?

A

The rate at which output can grow, on a sustained basis, without putting an upward or downward pressure on inflation

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15
Q

What is a depression?

A

A severe recession lasting longer than 2 years

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16
Q

What type of fluctuations occur in an economy?

A

Seasonal fluctuations
Cyclical fluctuations

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17
Q

What are seasonal fluctuations?

A

Fluctuations in the economy that are largely caused by changes in the weather e.g. seasonal employment in travel and tourism

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18
Q

How frequently does the economic cycle occur?

A

Approx. Every 4-12 years

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19
Q

What causes economic cycles?

A

Fluctuations in aggregate demand

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20
Q

What is aggregate demand

A

The total demand for goods and services in a particular market

21
Q

Why does aggregate demand fluctuate?

A

Consumer and business confidence giving way to pessimism

22
Q

What is an output gap/

A

When the level of actual real output is greater/lower than the trend output level

23
Q

What is a hysteresis?

A

The effect of a disturbance on the course of the economy

24
Q

What are the benefits of economic growth?

A
  1. Increases living standards
  2. Can lead to more civilised communities who take action to improve the environment
  3. Produces a fiscal dividend
25
Q

What is a fiscal dividend?

A

An increase in tax revenue that growth generates

26
Q

Why are fiscal dividends useful in an economy?

A
  1. Can be used to provide infrastructure
  2. Can be used to promote the means of reducing disease (e.g. better healthcare, more accessible appointments for people to be treated)- this therefore increases peoples life expectancies and overall welfare
27
Q

What are the costs of economic growth?

A
  1. Uses up finite resources
  2. Leads to urbanisation
  3. Leads to a rapid growth in population
28
Q

Why is the use of finite resources a consequence?

A

contributes to pollution (and other forms of environmental degradation)

29
Q

Why is urbanisation a consequence of economic growth

A

It swallows up good agricultural land

30
Q

Why is a rapid growth in population a consequence of economic growth?

A
  • more mouths to feed
  • wider inequalities in the distribution of income
  • higher poverty rates
31
Q

What are the four macroeconomic objectives?

A
  1. (High and sustainable) economic growth
  2. (To achieve and maintain) full employment
  3. Price stability
  4. (Equilibrium of) the balance of payments
32
Q

What is a policy objective?

A

A target/ goal that a government wishes to achieve

33
Q

What is GDP?

A

The sum of all goods and services produced in an economy in one year

34
Q

What is real GDP?

A

A measure of all the goods and services produced in an economy, adjusted for inflation, in one year

35
Q

What is nominal GDP?

A

GDP that hasn’t been adjusted for inflation

36
Q

What is inflation?

A

A general rise in the average price levels across the economy

37
Q

What is inflation?

A

A general rise in the average price levels across the economy

38
Q

What is absolute price stability?

A

A zero annual rate of inflation

39
Q

What is the optimal inflation rate the government wishes to achieve?

A

2%

40
Q

What is deflation?

A

When the average price level of goods and services falls

41
Q

What is disinflation?

A

When the rate of inflation is falling but still positive

42
Q

What two measures are used to calculate consumer price inflation?

A

CPI (consumer price index) and RPI (retail price index)

43
Q

What is consumer price index?

A

The average price increase of a basket of 700 ‘commonly’ bought goods and services

44
Q

What is retail price index?

A

The CPI including housing costs such as mortgage costs and council tax

45
Q

What is gdp per capita?

A

The average economic output per person

46
Q

How is gdp per capita calculated?

A

GDP / population

47
Q

What is HDI?

A

Human development index

48
Q

What indicators does HDI take into consideration?

A

Life expectancy
Education
Per capita income

49
Q

What is real wage growth?

A

When nominal wages rise faster than the rate of inflation

Economics (6 decks)

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