Macro 1 Flashcards
What is the short-run?
A period in macroeconomics extending just a few years into the future.
What is the long-run
A period in macroeconomics extending many years into the future
What is an economic shock?
An unexpected event that causes a shift in AD and/or AS
What is a policy objective?
A target or goal that a government wants to achieve.
What are the UKs economic objectives?
- Sustainable economic growth
- Low unemployment
- Low, stable rates of inflation (2%, +- 1% each side)
- Satisfactory balance of payment
- Achieving a more equitable distribution of wealth and income
What is a trade-off?
Where there are 2 or more desirable objectives that are mutually exclusive.
What are some examples of policy trade offs?
- Economic growth vs a satisfactory balance of payments
- Achieving full employment vs controlling inflation
- Economic growth vs equitable distribution of income and wealth
What is the most important macroeconomic objective to achieve?
It is generally believed that sustainable economic growth is the most important macroeconomic objective due to it allowing other objectives to be achieved
How could all macroeconomic objectives be achieved?
Many free-market economists argue that supply side policies could be used as there are no trade-offs in the long run.
What is short-run economic growth?
When an economy utilises previously unused resources to bring the actual economic performance closer to the productive potential of the economy.
What is the main cause of short-run economic growth?
Demand side changes in the economy (which are a result of shifts in AD)
What is the limitation for short-run economic growth?
Once the spare capacity has been utilised, further increases in AD are purely inflationary - a shift in LRAS is required.
What is long-run economic growth?
When there is an increase to the productive potential of an economy, changing the trend rate of growth for a country
What is the trend rate of growth?
The rate at which output can grow without putting pressure on inflation
What causes long-run economic growth?
Supply side changes in the economy - caused by a shift in LRAS
What is the limitation for long-run economic growth?
An increase in AD is also required, ensuring that there is sufficient demand in the economy to match the increased AS
What are the benefits of economic growth?
- Increased standards of living
- Development of more advanced technology
- Increases tax revenue that can be used to correct market failures
- Increase international competitiveness
What are the costs of economic growth?
- Finite resources are usually used up
- It often results in environmental degradation
- Local communities can be destroyed
- It can widen inequalities in wealth and income
- Automation may increase unemployment
What is the economic cycle?
The stage of economic growth that an economy is in
How long does each stage of the economic cycle last?
Usually between 4 and 12 years
What are the 3 stages of the economic cycle?
- The boom phase
- The recession phase
- The recovery phase
What is the boom phase?
Where real GDP is above the trend rate of growth
What is the recession phase?
Where the rate of economic growth declines
What is the recovery phase?
Where real GDP grows after the recession phase
