Economic Growth- TB Flashcards
What is long-run economic growth?
The expansion of the productive capacity of an economy
What is short-run economic growth?
An increase in actual GDP
What is a nominal value?
Value of an economic variable based on current prices, taking no account of changing prices throughout time
What is a real value?
Value of an economic variable, taking account of changing prices through time
What is real GDP?
GDP at constant prices, taking account of changing prices through time
What is nominal GDP?
GDP at current prices, taking no account of changing prices through time
What 4 things do you increase the potential output of to achieve long-run economic growth?
Improved quantity or quality of:
1) Land
2) labour
3) Capital
4) Enterprise
(FOP)
How can short-run economic growth be achieved?
Using more:
1) Land
2) Labour
3) Capital
4) Enterprise
(FOP)
What is the best ‘quantity’ improvement?
Roads- benefits everyone & increases amount of businesses that can use them
What is the best ‘quality’ improvement?
Specialisation- improves each workers skill at carrying out their work as they can improve
How do you show 1) short-run & 2) long-run economic growth on a PPC curve?
1) Point moving further towards PPC
2) PPC shifting right
What is gross national income (GNI)?
GDP plus income from abroad
What is seasonal adjustment?
When seasonal fluctuations in a variable are smoothed to reveal the underlying trend
What is GDP per capita?
Average level of GDP per head of population
What is labour productivity?
Measure of output per worker or output per hour worked
What is capital productivity?
measure of output per unit of capital
What is total factor productivity?
Average productivity of all factors measured as the total output divided by the total amount of inputs used
What is human capital?
Stock of skills & expertise that contribute to a worker’s productivity, increased through education & training
What is the economic cycle?
A phenomenon whereby GDP fluctuates around an underlying trend, following a regular pattern
What is a recession?
When an economy’s real GDP falls for 2 consecutive quarters (quarter of a year)
What is indexing?
Taking a base year to allow easy comparisons to that year
What is the equation for a price index?
Nominal GDP ÷ real GDP x 100
How do you work out % change?
100 (New value ÷ old value) -100
How do you work out GDP per capita?
GDP ÷ population
When is SR economic growth possible?
If economy is below full employment
How is short run economic growth shown on a PPC diagram?
A movement to the PPC from a position within the curve
What 2 things can short run economic growth be caused by?
1) Increase in AD
2) Increase in short run AS
What does 1) economic growth & 2) recession reflect?
1) Rising output
2) Falling output
What are 2 benefits of economic growth?
1) Improves living standards if GDP is greater than population
2) Higher RDI- improve environment, more luxuries etc
What is a disadvantage of recession?
A longer and deeper recession leads to more unemployment & reducing living standards to a larger extent
Why is economic growth important?
It’s the main way of measuring how living standards of a country’s population is changing
What is inflation?
The rate of change of the average price level
What is an index number?
A way of comparing the value of a variable with a base observation
What is consumer price index (CPI)?
A measure of the general level of prices in the UK, as a measure of the government’s inflation target
What is retail price index (RTI)?
A measure of the average level of prices in the UK
What is deflation?
A fall in average price levels (negative inflation)
What is disinflation?
A fall in the rate of inflation (less inflation than previouslt)
What is hyper inflation?
When inflation reaches extreme or excessive rates
What are 2 measures of the price level?
1) Consumer price index (CPI)
2) Retail price index (RPI)
What is cost-push inflation?
Inflation being caused by an increase in the costs faced by firms arising on the supply side of an economy
What is demand-pull inflation?
Inflation caused by an increase in AD
What is money stock?
The quantity of money in the economy
What are 6 consequences of persistently high inflation?
1) Increased inequality
2) Falling real incomes
3) Resource allocation difficulties
4) Risks of wage inflation
5) Uncertainty (less I)
6) Menu & shoe-leather costs
What are 2 advantages of high inflation?
1) Reduced real value of debt
2) Facilitates economic growth
What are 3 disadvantages of high inflation?
1) Fiscal drag- gvnmt doesn’t increase tax brackets with inflation, increasing tax on income worth less
2) Increased costs
3) Uncertainty
What does the level of inflation wanted depend on?
What the economic objectives are, if objective is to decrease national debt, high inflation is desirable, if objective is growth, low & stable inflation is desirable
