Theme 2 - The UK economy - Performance and Policies (2.5 - Economic Growth) Flashcards
Define Actual Growth [1]
2.5.1 - Causes of Growth
An increase in Real GDP in an economy over time. [1]
Define Potential Growth [1]
Ref - 2.5.1 - Causes of Growth
An increase in the productive potential of an economy over time. [1]
What is the main factor which can increase actual economic growth? [1]
Give an example of this. [1]
Ref - 2.5.1 - Causes of Growth
An increase in any of the 4 factors in the AD identity. [1]
e.g. Higher consumption rates means there is more money flowing in an economy. [1]
What is the main factor which can cause potential economic growth? [1]
Give an example of this. [1]
Ref - 2.5.1 - Causes of Growth
Improvements in the quality of factors of production. [1]
e.g. Investing in more training for workers to increase their productivity. [1]
What is a positive output gap? [1]
2.5.2 - Output Gaps
When GDP is above the productive potential of an economy. [1]
What is a negative output gap? [1]
2.5.2 - Output Gaps
When GDP levels are below the productive potential of the economy. [1]
How can a positive output gap be achieved? [1]
2.5.2 - Output Gaps
Overworking factors of production for a limited time. [1]
How is a negative output gap achieved? [1]
2.5.2 - Output Gaps
High amounts of spare capacity and unemployment. [1]
Describe positive and negative output gaps on both LRAS diagrams. [1]
Ref - 2.5.2 - Output Gaps
Yfe - Y1 = Positive/negative output gap [1]
Diagrams (Page 45) - Pack 3
Using either a Keynesian or Classical LRAS, sketch a positive and negative output gap. [2]
Ref - 2.5.3 - Output Gaps
[1] - Sketched positive output gap.
[1] - Sketched negative output gap (preferably with classical over Keynesian.)
Reference - https://www.youtube.com/watch?v=-es6BW0ytdg
What is the business cycle? [1]
2.5.3 - Business Cycle
A concept where GDP fluctuates, following a regular pattern. [1]
What does the business cycle show about actual GDP levels? [2]
2.5.3 - Business Cycle
Actual GDP will be in a positive output gap, [1] and it will also be in a negative output gap. [1]
Describe the general structure of a business cycle diagram. [2]
2.5.3 - Business Cycle
1 Straight line showing growth trend. [1]
1 fluctating line on the growth trend line. [1]
Describe what the business cycle tells us about it’s function. [2]
Ref - 2.5.3 - Business Cycle
An economy will try and keep GDP levels near the growth line [1] to avoid booms and recessions in an economy, which is unstable. [1]
How are actual and potential growth rates shown on a business cycle diagram? [2]
Ref - 2.5.3 - Business Cycle
Actual - Shown by a positive output gap. [1]
Potential - Shown by a shift outwards/inwards of the potential growth line. [1]
Define an economic boom. [1]
2.5.3 - Business Cycle
Actual GDP is above the productive potential rate of economic growth. [1]
Define what is meant by a recession. [1]
2.5.3 - Business Cycle
When GDP falls for 2 or more consecutive quarters. [1]
State 3 - 4 characteristics of an economic boom. [4]
2.5.3 - Business Cycle
- Low rates of unemployment. [1]
- High consumption and consumer confidence. [1]
- High animal spirits [1]
- Low levels of spare capacity. [1]
State 3-4 characteristics of a recession. [4]
2.5.3 - Business Cycle
- High rates of unemployment. [1]
- Low consumer confidence and higher saving. [1]
- Low animal spirits for firms. [1]
- High levels of spare capacity. [1]
State and explain 2 benefits of economic growth on consumers. [6]
2.5.4 - Effects of Growth
More employment opportunities [1]. Businesses are likely to expand due to more output in an economy [1], therefore more labour is needed to expand, reducing unemployment. [1]
Higher consumer confidence [1]. Consumers are like to reduce saving and increase spending. [1] as consumers may see a wealth effect as their house price increases. [1]
State and explain 2 impacts of economic growth on firms. [6]
2.5.4 - Effects of Growth
Higher business confidence. [1] As revenue increases, animal spirits also increase [1], incentivising firms to invest in things such as factors of production, to further increase revenue. [1]
Reduced international competitiveness. [1] As inflation goes up, firms may increase prices. [1] This will reduce the competitiveness of UK exports, decreasing revenue. [1]
State and explain 2 impacts of economic growth on the government [6]
2.5.4 - Effects of Growth
Higher tax revenue [1]. As workers earn more income, they pay more income tax, [1] and businesses earn more revenue, so pay more corporate tax. [1]
Reduced government spending. [1] As more people enter employment, less money is needed to spend on unemployment benefits, [1] such as JSA. [1]
State and explain 1 impact of economic growth on current living standards. [3]
2.5.4 - Effects of Growth
Current living standards rise. [1] Higher incomes may cause increased spending on goods [1] so increasing living standards of a household. [1]
Explain 1 factor which can influence the desirability of economic growth. [3]
2.5.4 - Effects of Growth
Magnitude of growth [1] - As economic growth increases, inflation and environment damage may increase, [1] which can therefore conflict with other macroeconomic objectives. [1]
