2.5 Economic growth

Question 1

UK GDP

2.5.1

Answer 1

2 trillion

Question 2

Actual economic growth

2.5.2

Answer 2

an increase in measured real GDP (measured by the rate of growth of real GDP/the percentage change in real GDP)

actual level of output may be lower than the potential level of output
i.e. economy is producing within the PPF because some factor inputs are unemployed or being inefficiently

able to observe

Question 3

Potential economic growth
Advantages?

2.5.2

Answer 3

An increase in the productive capacity of the economy.
Economic growth enables a society to produce more goods and services in any given period as a result of an expansion in its resources.

Question 4

How to measure productive potential?

2.5.2

Answer 4

Difficult to do directly. Economists use changes in GDP over the long-term as a proxy measure known as the long term trend rate of output.

Question 5

Output gap and Keynesian and classical assumptions

2.5.2

Answer 5

the difference between actual real GDP and potential real GDP.

Keynesian:
output gap can persist in the long run.

Classical:
output gap is short lived and the economy will move back to the full employment level at Yfe.

Question 6

Negative output gap

2.5.2

Answer 6

When economy is operating below full employment level. There is unused capacity & employment.

Question 7

Positive output gap

2.5.2

Answer 7

when actual real GDP is beyond the full employment level.
e.g. firms respond to an increase in AD in the short-term by asking workers to work overtime. not sustainable in the long-run

Question 8

Productivity

2.5.2

Answer 8

A measure of the efficiency of a factor of production.

Question 9

Trade (business) cycle

Answer 9

a phenomenon whereby GDP fluctuates around its underlying trend, following a regular pattern