4.6 Economic Growth Flashcards
1
Q
How is GDP caluclated?
A
The value of expenditure in an economy:
Consumption + investment + government spending + (exports - imports)
2
Q
What is real vs nominal GDP?
A
- Nominal: not adjusted for inflation
- Real: adjusted for inflation
3
Q
What is GDP per capita?
A
GDP / population (average wealth of citizens)
4
Q
What are the causes of GDP growth?
A
- Change in aggregate demand (it and GDP have the same components)
- Change in quantity/quality of factors of production (PPC)
5
Q
What are the benefits of economic growth?
A
- Increased income, standard of living
- Decreased absolute poverty
- Reduced unemployment
- Higher tax revenue
- Improved quantity/quality of environmentally friendly technology
6
Q
What are the costs of economic growth?
A
- Rising aggregate demand, demand pull inflation
- Lack of equity
- Environmental damage
- Resources depleted more rapidly
- Inflation –> decreased exports
- Imports increase
7
Q
Define a recession
A
A period of negative economic growth for two successive quarters (six months)
8
Q
What causes a recession?
A
- Demand side: Fall in any factors that influence aggregate demand (consumption, investment, gov spending, net exports)
- Supply-side: Shocks that create challenges for firms/consumers (e.g. Russian war on Ukraine)
9
Q
What are the consequences of a recession?
A
- National output (rGDP) falls
- Firms go bankrupt
- Unemployment
- Exports and imports fall
- Domestic/foreign investment by firms stop
- Deflation (leads to lower wages)
10
Q
Describe demand side policies to generate economic growth, and give examples
A
- Aims to increase aggregate demand
- Uses fiscal and monetary policy
- Fiscal: subsidies, reduce import taxes, increase unemployment benefits
- Monetary: Lower interest rates, quantitative easing
11
Q
Describe supply side policies to generate economic growth, and give examples
A
- Aims to increase total supply in the economy
- Reduce benefits (increase motivation to work), education/training, remove protectionism
