Economic Performance Flashcards
short run growth
using existing resources more efficiently
what is long run growth
when there is sustained improvement in quantity or quality of the FOP leading to increase in production over a period of time
factors of long run growth
technological advancements
investment in human capital
capital accumulation, instutional and policy factors, pop. growth and R&D
how can demand side growth be shown
the PPF curve
how to illustrate long run economic growth
the LRAS shifting right ( A change to the quantity/quality of the factors of production has increased potential output of the economy from YFE→YFE1)
and PPF curve shifting outwards ( caused by an increase in the quality or quantity of the available factors of production eg quality can be improved through training labour force leading to more productivity)
Benefits of economic growth
Increased employment
Higher GDP= Increase standard of living
facilitate investment on infrastructure
more competitive= better quality, innovation more consumer choice
costs of economic growth
negative externalities
depletion of natural resources
unequal distribution of wealth
not evenly distributed
impact of economic growth(EG) on indvdls
EG can lead to higher income levels for individuals. with businesses expanding and creating or jobs opportunities ppl will gain rising wages but it may not be evenly distributed if ur alr a higher income indvdl with assets might gain significant compared to poor growth leading to big difference between poor and rich
impact on economic growth on the economy
higher employment rates, improved standards of living , increased investment in education
However, can lead to inflation making exports more expensive reducing competition in global markets
impact of economic growth on the environment
negative externalities: increased air pollution and plastic waste
depletion of resources harms ecosystems and bio diversity
more waste levels and poor management could lead to env. damage
what is the economic cycle
refers to the changes in real GDP that occur in an economy over time.
represents the actual growth and fluctuations in economic activity.
four points in the cycle
boom recession slowdown recovery
diagram of economic cycle
one squiggly line repreents real gdp and one straight line called potential gdp
what is a positive output gap
growth of real GDP that is above the trend
what is a negative output gap
growth of GDP that is below the trend
chararcteristics of a boom
high rates of economic growth
reduction of negative output gap
reducing unemployment
higher confidence
improved gov budget
characteristics of a recession
two or more consecutive negative economic growth
high unemployment
increasing negative output gap
spare production capacity
low inflation
low confidence
an indication of a positive output gap
rapidly increasing prices
an indicator of negative gap increasing
rising unemployment and a slowdown on economic growth
diagram of negative output gap
when it produces below the equilibrium
positive output gap
when the economy is operating beyond its full potential
cause because workers are willing to work overtime to reach full capacity however not sustainable and will return to full employemnt but at a higher price
Factors that Change the Phase of the Economic Cycle
economic shocks
herd behaviour when ppl copy other because they believe tha a collective one is more accurate/rational
excessive growth in credit and lvls in debt
asset price bubbles
definition of unemployment
of working age not working but actively seeking work
what is economically inactive
of working age but not working and not seeking work
what is involuntary unemployment
workers willing to worm at current market wage rates but no jobs available
what is voluntary unemployment
workers choose to remain unemployed to reduce job offers
types of unemployment
seasonal unemployment
frictional unemployment
structural
cyclical
what is cyclical unemployment
lack of AD in economy normally during slowdowns or recession
what is seasonal unemployment
when certain seasons come to an end and labour is not required till next szn
what is frictional unemployment
when workers are between jobs
what is structural unemployment
mismatch between jobs and skills in the economy
eg no longer a need for a specific type of worker
what causes demand side unemployment
lack of AD and recession
gov response to structural unemployment and if its a demand or supply side factor
supply side
retrain workers for correct areas
gov response to seasonal unemployment and if its a demand or supply side factor
demand side
extend operational seasons
subside innovation
gov response to frictional unemployment and if its a demand or supply side factor
supply side
implement retraining schemes
reduce workers search periods between jobs
gov response to cyclical unemployment and if its a demand or supply side factor
demand side
take measures to stimulate AD
monetary & fiscal policy to counteract unemployment
what is real wage unemployment
when wages are inflexible at a higher point than the free amrket equilibrium wage
caused by minimum wage laws
higher wages create excess supply of labour ( real wage unemployment)
real wage unemployment diagram
like minimum price diagram
what is natural rate of unemployment
refers to the level of unemployment that exists when the labour market is in equilibrium.
includes frictional and structural unemployment
seen as sustainable sine there is no pressure on payments
the effects of unemployment on the government
less tax revenue
increased spending on benefits
increased spending on retraining
the effects of unemployment on the economy
increased crime
vandalism
increased anti social behaviour
increased homelessness
effects of unemployment on the individual
loss of income
health issues
mental instability
sense of failure
effects of unemployment on firms
loss of sales rev
loss of output/production
changes the skill lvl in the economy
what is imported inflation
price of imports increases leading to overall rise in the domestic price lvl
what happens when global prices rises
increases costs for the UK affecting various sectors such as transportation and energy production
what is commodity prices
something that is valuable
two common sources of imported inflation in the UK
food and oil supplies
factors in other economies that can affect inflation in the UK
exchange rates
economic growth in trading patterns
global shocks
how economic growth in trading partners can affect uk inflation
strong economic growth in major trading partners may increase demand for UK exports
what global shocks affect inflation
global shock eg wars natural disasters increase inflationary pressures
result of reducing negative output gap
by stimulating demand leads lower unemployment but also inflation
result of too much of positive output gap
lower inflation and higher unemployement
what is the short run phillips curve (SRPC)
observes that there may be a trade off between unemployment and inflation
the trade off in the SRPC
rising inflation = lower unemployment
rising unemployment = lower inflation
what is the LRPC
suggest no trade off between inflation and unemployment
what does LRPC represent
based on the idea natural rate of unemployment
represent lvl of unemployment consistent with non-accelerating inflation, meaning that there is no trade-off between inflation and unemployment
what type curve is the LRPC
vertical
consequence for short run policy decisions
that theres gna be trade offs
trade off: high economic growth and inflation
high economic growth= FE
but inflation may exceeded target rate of 2%
trade off: high economic growth and env. sustainability
economic can lead to negative externalities pollution and depletion non renewable resources
implication of long-run phillips curve
LRPC no permanent trade-off between unemployemnt and inflation
LR economy tends to return to its natural lvl of output
