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Economics (Macro) > Growth > Flashcards

Growth Flashcards

1
Q

How do we measure growth

A

Measured by a percentage change in real GDP

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2
Q

What is the UK official target for growth

A

2.75%

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3
Q

How is short run growth caused

A

Caused by an increase in aggregate demand / (Demand side policies)

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4
Q

When does short run growth occur (think diagrammatically)

A

When the economy is below full employment (YF)

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5
Q

Draw the diagram for short run growth

A
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6
Q

What is the trade off with, for short run growth

A

Inflation

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7
Q

What happens to inflation during short run growth

A

Increases

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8
Q

What is required for long run economic growth

A

Requires an increase in productive capacity of the economy

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9
Q

What causes long run growth

A

Supply side policies

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10
Q

Draw the diagram for long run growth

A
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11
Q

What are 3 benefits of economic growth (to consumers)

A
  • More material well-being
  • More ability to buy goods and services
  • Higher standard of living
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12
Q

What are 4 benefits of economic growth (government aims)

A
  • Increase in national income
  • Employment
  • Increase in gov. budget
  • Increase in FDI
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13
Q

What are two benefits of an increase in the government budget

A
  • More provision of public and merit goods
  • More spending on SSPs
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14
Q

What is Foreign direct investment (FDI)

A

When abroad countries set up in the UK when the UK economy is performing well

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15
Q

What is the accelerator theory ?

A

An increase in income in the economy/GDP leads to a faster increase in the rate of investment

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16
Q

What are 3 costs of growth (to consumer)

A
  • Rising inequality
  • Poor work leisure balance
  • Increase in cost of living (inflation)
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17
Q

How may growth lead to an increase in inequality

A

Due to the wealth effect - Value of assets rise (or are on the rise) which leads to an increase in spending (further investment)

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18
Q

What are 2 costs of economic growth (government)

A
  • Can cause inflation if AD rises too quickly & there is no increase in LRAS
  • May worsen the UK’s budfet deficit if financed through debt
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19
Q

Give a cost of growth leads to the question of whether growth is sustainable?

A

The environmental impact of growth: fossil fuels, combustion, plastics

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20
Q

What are the two types of demand side policies

A

Fiscal policy
Monetary policy

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21
Q

What does fiscal policy include

A

Use of gov. spending and tax

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22
Q

What does monetary policy include

A

Rise or fall of the interest rate

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23
Q

What happens to interest rates when there is high inflation

A

Interest rates rise

24
Q

What happens to interest rates when there is low inflation

A

Interest rates fall

25
Q

What is the equation for aggregate demand ( outline what each of the letters stand for)

A

AD = C + I + G + (X-M)

  • C - Consumer spending
  • I - Investment
  • G - Government spending
  • X - Exports
  • M - Imports
26
Q

What is the short run

A

Within a certain period, one factor of production is fixed

27
Q

What is the long run

A

Within a certain period, all factors of production are variable

28
Q

What is a recession

A

Two consecutive quarters of negative growth

29
Q

What is a recovery period

A

A period of rising growth, yet still below the trend line

30
Q

What is a negative output gap

A

Where the level of A.D in the economy is below the full employment level of aggregate supply

31
Q

What are 3 causes of the economic cycle

A

Inventory cycle
Changes in Interest rate
Changes in asset prices

32
Q

What is inventory cycle

A

Where some economists believe that luxury goods are bought in a cyclical fashion, leading to surges in AD (And SR growth)

33
Q

What are the two types of monetary policy

A

Expansionary
Contractionary

34
Q

What are asset price bubbles

A

Can occur due to the wealth effect, where the price of certain assets such as stocks and real estate rise dramatically above their intrinsic value (eventually leads to a drastic fall in AD)

35
Q

What is an economic shock

A

An unexpected event which impacts the economy

36
Q

What feature of the economy do supply side shocks affect?

A

Affects costs (and therefore prices)

37
Q

What is the multiplier effect

A

Where increases in government spending lead to a greater increase in national income

38
Q

What feature of the economy do demand side shocks affect

A

Affects confidence/spending power

39
Q

What is an example of a demand side shock

A

Unexpected rise in interest rates

40
Q

Give 5 real causes of short run growth

A
  • Any of the factors from the AD equation causing AD to rise
  • Lower interest rates
  • A decrease in the value of the pound (increase in exports)
  • Decrease in tax/Increase in gov spending
  • Consumer/business confidence
41
Q

Give 5 real causes of Long run growth

A
  • Better education/ training
  • R &D
  • Lower corporation tax
  • Investment in capital stock
  • Immigration
42
Q

What is a common question which arises when measuring growth?

A

Is GDP a ‘good’ measure of growth

43
Q

What is GDP?

A

A measure of value of all goods and services produced in an economy

44
Q

What is a problem with using GDP per capita to measure growth?

A

It doesn’t say how GDP per capita is distributed (Even or Uneven)

45
Q

How does the nature of goods produced affect the accuracy of GDP as a measure of success

A

If GDP is generated as a result of producing war materials (e.g. North Korea), as opposed to producing wind farms, then is it high GDP a good thing ?

46
Q

Give 3 reasons Why not all GDP is recorded

A
  • All transactions aren’t recorded
  • Reciprocal agreements ( I do this you do that)
  • Illegal transactions
47
Q

What is the HDI

A

Human development index
A broader measure of economic welfare

48
Q

What does HDI measure

A

Income levels
Education
Life expectancy

49
Q

What are 2 limitations of the HDI

A
  • HDI reflects long term changes
  • Economic welfare/ quality of life depends on many other factors
50
Q

What 4 factors influence quality of life and overall economic welfare which the HDI does not measure

A
  • Freedoms (vote/gender equality)
  • Fair judicial system
  • Access to clean drinking water
  • Peaceful society (threat of war)
51
Q

What index attempts to measure happiness

A

Happiness index

52
Q

What theory suggests a boost in short run growth may lead to long run growth. Draw the diagram

A
  • Accelerator effect suggests that an increase in GDP(SR) from Y to Y1(diagram), leads to more business investment, therefore long run sustainable growth at Y2 (budget links) (but this depends on business confidence, certainty & support from gov)
53
Q

How do we calculate real GDP per capita from index numbers

A
54
Q

Give a real world example of a recent policy which aims to stimulate growth

A

Heathrow 3rd runway
Increase passenger capacity to over 130 million per year, supporting tourism and business travel.
Create up to 180,000 new jobs across the UK.
Add £61 billion to the UK economy over the next few decades through increased trade and investment.

55
Q

How long is the Heathrow runway going to take and why

A

Will take up to 15 years to be complete, this is due to the government estimating it will take 10 years to overcome the strict UK planning permission laws and environmental lobbyists concerns

56
Q

What statement did the government make about growth as a target

A

The government now believes that growth is the primary objective now, and ‘all other objectives are secondary’ (especially the environment)

Economics (Macro) (11 decks)

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