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Year 2 Revision of Year 1 A Level Economics > Macroeconomics 2.1 Economic Growth > Flashcards

Macroeconomics 2.1 Economic Growth Flashcards

1
Q
A
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2
Q

What is economic growth?

A

An increase in the productive capacity or potential of the economy.

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3
Q

What is the policy objective of economic growth?

A

To increase the overall output and efficiency of an economy.

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4
Q

What are the different stages of the economic cycle?

A
  • Boom
  • Downturn
  • Recession
  • Recovery
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5
Q

What do real and nominal GDP refer to?

A

Real GDP is adjusted for inflation, while nominal GDP is measured at current prices.

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6
Q

How is economic growth measured?

A

By calculating the changes in GDP over time.

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7
Q

What is the formula for Aggregate Demand (AD)?

A

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

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8
Q

Who are the two economic agents in the basic circular flow?

A
  • Households
  • Firms
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9
Q

What are the three withdrawals from the circular flow?

A
  • Savings
  • Taxes
  • Imports
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10
Q

What are the three injections into the circular flow?

A
  • Investment
  • Government spending
  • Exports
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11
Q

What do SRAS and LRAS stand for?

A
  • SRAS: Short-Run Aggregate Supply
  • LRAS: Long-Run Aggregate Supply
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12
Q

Name two factors that affect consumption decisions.

A
  • Disposable income
  • Consumer confidence
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13
Q

Name two factors that affect investment decisions of firms.

A
  • Interest rates
  • Business expectations
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14
Q

What shifts Short-Run Aggregate Supply (SRAS)?

A

Changes in production costs, supply shocks, and temporary changes in labor productivity.

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15
Q

What shifts Long-Run Aggregate Supply (LRAS)?

A

Changes in the quantity and quality of factors of production.

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16
Q

What is the multiplier?

A

The ratio of change in national income to the initial change in spending that caused it.

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17
Q

What is the accelerator?

A

The principle that an increase in national income leads to a larger increase in investment.

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18
Q

Write one formula for calculating the multiplier.

A

Multiplier = 1 / (1 - MPC)

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19
Q

Write another formula for calculating the multiplier.

A

Multiplier = Change in GDP / Initial Change in Spending

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20
Q

Write a third formula for calculating the multiplier.

A

Multiplier = 1 / MPW

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21
Q

What does MPW stand for?

A

Marginal Propensity to Withdraw

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22
Q

What is short-term economic growth?

A

An increase in real GDP due to rising demand.

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23
Q

List three policies that could be used to stimulate Aggregate Demand.

A
  • Tax cuts
  • Increased government spending
  • Lowering interest rates
24
Q

Does government intervention to stimulate short-term economic growth work? True or False?

A

True, but there are advantages and disadvantages.

25
Q

What are the advantages of government intervention for short-term economic growth?

A
  • Increased national income
  • Lower unemployment
  • Enhanced consumer confidence
26
Q

What are the disadvantages of government intervention for short-term economic growth?

A
  • Inflationary pressures
  • Increased national debt
  • Potential market distortions
27
Q

What is the definition of the trend rate of economic growth?

A

The rate of economic growth that can be maintained in the long term.

28
Q

What are the causes of increases in the trend rate of economic growth?

A
  • Technological advancements
  • Increases in productivity
  • Improvements in human capital
29
Q

What is net investment?

A

Investment after accounting for depreciation.

30
Q

What is replacement investment?

A

Investment made to replace worn-out or obsolete capital.

31
Q

What is the economic cycle?

A

Fluctuations in economic activity around the productive potential of an economy.

32
Q

What happens during a recession?

A

Demand falls, output decreases, and unemployment rises.

33
Q

What characterizes a boom phase in the economic cycle?

A

High demand, rapid growth, and low unemployment.

34
Q

What is the relationship between GDP and economic recessions?

A

Recessions are typically defined by two consecutive quarters of negative GDP growth.

35
Q

How is GDP per capita calculated?

A

Real GDP divided by the population of a country.

36
Q

What is purchasing power parity (PPP)?

A

A method to adjust GDP per capita for relative prices across countries.

37
Q

What is long-term economic growth?

A

An increase in the productive potential/capacity of an economy over time.

38
Q

What are the factors of production that influence long-term economic growth?

A
  • Labour
  • Capital
  • Enterprise
  • Land
39
Q

What are the benefits of economic growth?

A
  • Increased employment
  • Higher disposable incomes
  • Improved living standards
40
Q

What are the costs of economic growth?

A
  • Environmental degradation
  • Income inequality
  • Increased inflation
41
Q

The underlying long-term trend rate of economic growth can be defined as the:

A

The rate of economic growth that can be maintained in the long term.

42
Q

What is one of the benefits of economic growth related to income?

A

Increased disposable incomes

This leads to higher consumer spending and improved living standards.

43
Q

What is a benefit of economic growth that affects employment?

A

Increased employment

Economic growth typically creates more job opportunities.

44
Q

Fill in the blank: Economic growth can lead to lower spending on _______.

A

benefits

This occurs as more individuals gain employment and become self-sufficient.

45
Q

What happens to the market failure of inequalities in income distribution due to economic growth?

A

Reduces the market failure of inequalities in the distribution of income

Economic growth can help bridge the gap between different income groups.

46
Q

What is a potential environmental cost of economic growth?

A

Increased negative externalities such as pollution

Economic activities can lead to environmental degradation.

47
Q

True or False: The Kuznets Curve suggests that income inequality decreases as an economy grows.

A

False

The Kuznets Curve indicates that inequality may initially increase during economic growth before decreasing.

48
Q

What does the Lorenz Curve represent?

A

Income and wealth distribution in an economy

It visually illustrates how income is distributed among different segments of the population.

49
Q

Explain the relationship shown by the Environmental Kuznets Curve.

A

As GDP per capita increases, emissions and pollution initially rise but eventually fall

This suggests that wealthier economies may invest more in clean technologies.

50
Q

List three potential problems with the Kuznets Curve.

A
  • It may not account for all countries equally
  • It assumes a linear relationship between growth and inequality
  • It overlooks the effects of globalization on income distribution

These problems challenge the model’s accuracy in explaining economic growth and inequality.

51
Q

What is one of the costs of economic growth that relates to inflation?

A

Potential inflationary impacts of short-term/actual growth

Rapid economic growth can lead to demand-pull inflation.

52
Q

Fill in the blank: Government interventions may be necessary to address _______ associated with economic growth.

A

negative externalities

This includes measures to reduce pollution and other environmental impacts.

53
Q

What is a benefit of economic growth that relates to government finances?

A

Improved government finances

Economic growth increases tax revenues, helping reduce budget deficits.

54
Q

What is the accelerator effect in relation to economic growth?

A

Higher rates of investment leading to technological improvements

This effect suggests that increased demand leads to more investment in production capacity.

55
Q

What does increased utility from the consumption of goods and services imply?

A

Consumers experience greater satisfaction and welfare

Economic growth can enhance the variety and quality of available goods.

56
Q

Explain how economic growth can impact healthcare funding.

A

Increased spending on healthcare

Economic growth allows for more government and private investment in health services.

Year 2 Revision of Year 1 A Level Economics (16 decks)

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