topic 14 Flashcards
economic growth
what is short-run economic growth?
an increase in the amount of real national output (GDP) produced within an economy
what is long-run economic growth?
an increase in the productive potential of an economy
what does business cycle mean?
a phenomenon where the GDP fluctuates around its underlying trend, following a regular pattern
what does output gap mean?
the difference between actual real GDP and potential or trend real GDP
or
the difference between Yfe and the current level of real national output
what does recession mean?
two or more quarters of negative economic growth
what might you expect to happen during a recession?
negative output gaps , fall in value of assets:
- house prices
- demand deficient unemployment
- government budgets worsen due to more spending on welfare
- less confidence amongst consumers and firms -> less spending and investment
what are some potential causes of a recession?
- financial crisis
- black swan event e.g. COVID
- rise in interest rates
- fall in real wages
- fall in consumer/business confidence
- supply-side shock
- trade war
- appreciation in the exchange rate
why is it that domestic economic policy and domestic AD may not be able to stop a recession?
due to the global nature of today’s economies
what does productivity mean?
a measure of efficiency of a factor of production
what does labour productivity mean?
output per worker
- what’s made/ number of workers
what does capital productivity mean?
output per unit of capital
how to calculate total factor productivity?
total output/all units of FOPs used
what does investment mean?
expenditure by all firms on capital goods produced within an economy
which of the 4 FOPs is a crucial source of economic growth?
capital
what to use to measure net investment?
‘gross fixed capital formation’
- the addition to the capital stock
what is taken away in order to reflect the true value of capital in an economy?
depreciation
what does depreciation mean?
the fall in the value of physical capital equipment over time as it is subject to wear and tear
what does net investment mean?
gross investment (minus replacement investment) minus depreciation
what does human capital mean?
the stock of skills and enterprise that contribute to a worker’s productivity
how do we increase human capital?
education and training
what is human capital restricted by in less developed countries?
standard of healthcare, education and training
what does export-led growth mean?
a strategy for achieving rapid economic growth through the promotion of export activity
the importance of economic growth?…
- standard of living - all aspire to have a higher standard of living
- employment - an increase leads to an increase in aggregate demand
what does resource depletion mean?
e.g. the use of air/the earth’s atmosphere, oil, forests and other types of ‘land’ as a factor of production
what does sustainable development mean?
development that meets the needs of the present without compromising the needs of the future
what are some economic objectives?
- economic growth
- low unemployment
- low and stable inflation
- balance of payments/current account
- greater income equality
- environmental sustainability
- balanced budget
