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AS Level Macroeconomics > LS10- Economic Growth > Flashcards

LS10- Economic Growth Flashcards

1
Q

Economic growth

A

Sustained growth in GDP, AD, improvements in productive potential of an economy.
An increase in LRAS will increase the productive potential of an economy, increasing its output- this is achieved by improving the quality and quantity of FaoPr.

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2
Q

Land

A

A more efficient and increased use of land and the natural resources in it can lead to increased LRAS, and hence, economic growth.

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3
Q

Labour

A

Increase in the quantity and quality of the labour force can increase economic growth- can be caused by rise in birth rates, increase in immigration, better training and education, participation rates.

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4
Q

Capital and technological processes

A

The stock of capital needs to be increased to improve productivity and output, meaning there needs to be sustained investment into capital. However, investment does not always leads to growth. Some investment is not growth related e.g. it’s often argued that investment in new housing does not lead to future increases in real GDP. Investment can also be wasted if it takes place in industries in projects which fail to be commercially successful.

Improvements in technology- cut costs of production and time taken for production; produces new products for the market which raises consumer spending.

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5
Q

Efficiency

A

Increased efficiency leads to better productivity and hence more growth. Competition can lead to better efficiency- firms compete against each other, due to the profit motive, trying to meet consumer demands, and trying to lower costs- increases productivity.

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6
Q

Economic cycles

A

Fluctuation in the economy’s growth over time- measured in GDP
Boom-> Downturn-> Recession-> Recovery-> Boom…

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7
Q

Boom

A
  • Economic growth- GDP is high
  • Economy working beyond full employment
  • Consumption (more imports), investment, expenditure is high
  • Wages will be increasing
  • Inflation will be increasing
  • Tax revenues high
  • Can lead to overheating- no spare capacity, leads to DOWNTURN
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8
Q

Downturn

A
  • Unemployment begins to increase
  • Output and income start to fall- net exports fall
  • Consumption and investment
  • Tax revenue falls- govt expenditure on benefits rises- budget deficit increases
  • Inflation falls
  • Economic growth starts to fall
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9
Q

Recession

A
  • Bottom of the cycle- economic activity is at a low, economic decline
  • High unemployment- disposable income is low
  • Consumption and investment falls
  • Deflation possible
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10
Q

Recovery

A
  • Output/income starts to increase
  • Unemployment begins to fall
  • Consumption, investment imports start to rise
  • Inflationary pressures start to rise
  • Rate of growth starts to increase
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11
Q

Output gaps

A

Gaps between actual and potential output.
Positive OG- GDP is above productive potential- BOOM
Negative OG- GDP is below productive potential- lot of spare capacity- RECESSION

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12
Q

Benefits of economic growth

A
  • Life expectancy, healthcare improves
  • More employment, more income
  • Housing standards increase
  • Quality of education rises
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13
Q

Drawbacks of economic growth

A
  • Growth is not sustainable- if the economy keeps growing forever, our** finite resources** will not have enough time to replenish, as they will always be in use- they will run out as they will be used unsustainably
  • Increases in production and output can lead to more pollution, from factories, etc- contributes to climate change/global warming
  • Disease of affluence
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14
Q

Evaluation of drawbacks of economic growth

A
  • As demand for resources rises, price also increases, rationing function kicks in- makes it so that only the people that can afford the higher prices can purchase the goods- decreases demand, lowering the rate of use.
  • This means that the exploration of alternative resources rises- demand drawn away from traditional resources, more substitutes- better for environment
  • Govt regulations and incentives can be used to reduce the impacts of pollution, and stop overuse of finite resources
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15
Q

Impact of economic growth on consumers

A
  • Rising household income- more consumption
  • But, most households may not see any gain, as most of the rewards of economic growth go to the wealthiest, who tend to hold assets
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16
Q

Impact of economic growth on the government

A
  • Rising tax revenue
  • Increased spending in public sector- govt improves facilities such as education, roads, hospitals
  • Possible reductions in tax rates
17
Q

Impact of economic growth on firms

A
  • Increased revenue- more sales as consumers have more disposable income
  • More competition and new technology can lead to some firms falling behind
18
Q

Impacts of economic growth on the environment

A
  • Rich countries- EG can lead to clearer environment, less pollution- govts more likely to spend more on technologies, more exploration of alternative energy sources
  • Developing countries- EG can lead to more pollution, degrading the environment
19
Q

Evaluating GDP/GNI

A

If GDP grows at a constant rate and is higher than of other countries, we assume that it is a good country with a strong economy- but this may not always be true due to factors such as
- GDP/GNI statistics may not always be true
- Doesn’t accurately reflect living standards in countries
- Many other factors to observe to determine if a country has a strong economy

20
Q

Inaccuracies in GDP stats

A
  • Doesn’t include non marketed output
  • Doesn’t include output in parallel/underground markets e.g. hidden economy
  • Differing price levels in different countries- varying purchasing power in different countries
21
Q

GDP/GNI and standards of living

A
  • No distinction between composition of the output- capital goods, consumer goods, military goods, merit goods all recorded as output, no specifics- cant see how output can improve standards of living
  • Can’t observe standards of eduction, healthcare, and life expectancy
  • No indicator in how income is distributed- even if GDP is high, income inequality being high suggests a weak economy
  • Doesn’t measure quality of life factors, as well as the subjective nature of living standards
  • Does not factor the impact of negative externalities

AS Level Macroeconomics (12 decks)

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