Theme 2.5 Flashcards
What is economic growth?
The expansion of the productive potential of the economy.
How can economic growth be depicted?
By an outward shift in the PPF or an outward shift in a country’s LRAS curve.
What is the primary measure of economic growth?
The annual change in real GDP.
What factors cause economic growth?
Improvement in the quantity or quality of factors of production, increases in efficiency, improved labour force, larger labour force, improved technology, more investment, discovering new resources, incentives for enterprise.
What is actual growth?
The percentage increase in a country’s real GDP, usually measured annually.
What causes actual growth?
Increases in AD.
What is potential growth?
The long run expansion of the productive potential of an economy.
What causes potential growth?
Increases in AS.
What is the potential output of an economy?
What the economy could produce if resources were fully employed.
What is an output gap?
The difference between the actual level of output and the potential level of output.
What is a negative output gap?
When the actual level of output is less than the potential level of output.
What is a positive output gap?
When the actual level of output is greater than the potential level of output.
What are the characteristics of a boom?
High rates of economic growth, near full capacity, positive output gaps, demand-pull inflation, high consumer and firm confidence.
What defines a recession in the UK?
Negative economic growth over two consecutive quarters.
What are the characteristics of a recession?
Negative economic growth, lots of spare capacity, negative output gaps, demand-deficient unemployment, low inflation rates.
What are the benefits of economic growth on consumers?
Increased average consumer income, higher confidence leading to increased consumption and higher living standards.
What are the costs of economic growth on consumers?
Unequal benefits, higher demand-pull inflation, more shoe leather costs, diminishing returns on consumption.
What are the benefits of economic growth on firms?
More profits, increased investment, development of new technologies, advantages of economies of scale.
What are the costs of economic growth on firms?
Increased menu costs due to higher inflation.
What are the benefits of economic growth on the government?
Improved government budget due to fewer welfare payments and increased tax revenue.
What are the costs of economic growth on the government?
Increased spending on healthcare due to higher consumption of demerit goods.
What are the benefits of economic growth on living standards?
Increased consumer incomes, development of greener technologies, improved public services.
What are the costs of economic growth on living standards?
Potential long-term environmental damage due to negative externalities.
What is comparative advantage?
When a country can produce goods and services at a lower opportunity cost than another.
