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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

In notes

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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

In notes

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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 trade deficit (debt to other countries)
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19
Q

Which 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

22
Q

What does monetary policy include

A

Rise or fall of the interest rate

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 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 produce affect the accuracy of GDP as a measure of growth

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

Why is all GDP not 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

Economics (Macro) (10 decks)

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