Macroeconomics 2.1 Economic Growth Flashcards
What is economic growth?
Economic growth is an increase in the productive capacity or potential of the economy.
What is the policy objective of economic growth?
The policy objective of economic growth is to enhance the economic output and standard of living.
What are the different stages of the economic cycle?
The different stages are boom, downturn, recession, and recovery.
What are real and nominal Gross Domestic Product (GDP)?
Real GDP is adjusted for inflation, while nominal GDP is measured at current market prices.
How do you calculate economic growth rates?
Economic growth rates can be calculated using the formula: ((GDP in current year - GDP in previous year) / GDP in previous year) * 100.
What is GDP per capita?
GDP per capita is the measure of average living standards in a country, calculated by dividing real GDP by the population.
What does SRAS stand for?
SRAS stands for Short-Run Aggregate Supply.
What does LRAS stand for?
LRAS stands for Long-Run Aggregate Supply.
What is the formula for Aggregate Demand (AD)?
AD = C + I + G + (X - M) where C is consumption, I is investment, G is government spending, X is exports, and M is imports.
What are the three withdrawals from the circular flow?
- Savings
- Taxes
- Imports
What are the three injections into the circular flow?
- Investment
- Government spending
- Exports
What are two factors that affect consumption decisions?
- Disposable income
- Consumer confidence
What are two factors that affect investment decisions of firms?
- Interest rates
- Business expectations
What shifts SRAS?
Factors such as changes in production costs, supply shocks, and changes in the price of inputs.
What shifts LRAS?
Factors such as technological advancements, increases in resources, and improvements in productivity.
What is the multiplier?
The multiplier is a factor that quantifies the change in economic output resulting from an initial change in spending.
What is the accelerator?
The accelerator is an economic concept that describes how investment levels change in response to changes in demand.
Write one formula for calculating the multiplier.
Multiplier = 1 / (1 - MPC) where MPC is the marginal propensity to consume.
What is replacement investment?
Replacement investment refers to spending to replace worn-out or obsolete capital.
What is short-term economic growth?
Short-term economic growth is an increase in the output of goods and services in the economy over a short period.
Name three policies that could be used to stimulate AD.
- Increased government spending
- Tax cuts
- Lower interest rates
What is the trend rate of economic growth?
The trend rate of economic growth is the long-term average rate of growth an economy can sustain.
What are the costs and benefits of economic growth?
Benefits include increased employment and higher incomes; costs may include environmental degradation and income inequality.
What does net investment mean?
Net investment refers to the total amount of investment in an economy minus depreciation.
What is the relationship between GDP and recession?
A recession is typically defined as two consecutive quarters of negative GDP growth.
What is the impact of inflation on economic growth?
Inflation can erode purchasing power but may also stimulate spending if consumers expect prices to rise.
True or False: Economic growth is always beneficial.
False. Economic growth can bring about negative consequences such as environmental issues and increased inequality.
What is the impact of government intervention on short-term economic growth?
Government intervention can stimulate short-term growth but may lead to inflationary pressures.
What is a benefit of economic growth related to disposable income?
Increased disposable incomes
Higher disposable income allows consumers to spend more, improving overall economic health.
What impact does economic growth have on employment?
Increased employment
Economic growth often leads to the creation of new jobs as businesses expand.
How does economic growth affect government finances?
Improved government finances
Economic growth increases tax revenues, which can help reduce budget deficits.
What is the relationship between economic growth and inequality according to the Kuznets Curve?
Initial increase in inequality, followed by a decrease as growth continues
The Kuznets Curve suggests that as an economy grows, income inequality may initially rise before it falls.
What is the Environmental Kuznets Curve?
Shows the relationship between GDP per capita and environmental degradation
It suggests that pollution may increase with economic growth initially but decrease after reaching a certain income level.
True or False: Economic growth always leads to reduced inequality.
False
Economic growth can initially widen the inequality gap before potentially reducing it.
Fill in the blank: Economic growth can lead to increased _______ from the consumption of different goods and services.
utility
Increased utility indicates greater satisfaction and value derived from goods and services.
What are two environmental costs of economic growth?
- Faster depletion of natural resources
- Increased negative externalities such as pollution
These costs highlight the trade-offs involved in pursuing economic growth.
What does the Lorenz Curve illustrate?
Income and wealth distribution in an economy
It visually represents how income is distributed among the population.
What is one potential problem with the Kuznets Curve model?
It may not accurately reflect the impact of growth on all income groups
Different regions and contexts can lead to varying experiences of inequality.
What can increased economic growth lead to in terms of healthcare?
Increased spending on healthcare
More resources become available for public health initiatives and services.
What is the accelerator effect in relation to economic growth?
Higher investment leading to increased productivity
This effect can result in more efficient production processes and innovation.
What is a key evaluation point regarding the benefits of economic growth?
However, it can exacerbate inequality
This point highlights the complexity of economic growth’s impact on society.
What are two sources of increased taxation receipts from economic growth?
- More Income Tax revenue
- More corporation tax revenue due to increases in firms’ profits
Increased profits and wages expand the tax base, leading to higher government revenues.
How does economic growth contribute to technological advancements?
Higher rates of investment leading to technological improvements
Investment in new technologies can enhance production efficiency and innovation.
What is a potential outcome for population happiness as a result of economic growth?
Potentially a happier population with higher social welfare
Economic growth can improve living standards and overall well-being.
What role does government intervention play in addressing negative externalities?
It aims to correct market failures and achieve social optimum levels of output
Government policies can help mitigate the adverse effects of economic growth on the environment.
