2 - Growth Flashcards
(19 cards)
Benefits of growth
- higher living standards
- greater profits for firms
- job creation
- reduced poverty
- greater income equality
- increased gov revenue
- investment opportunities
- better environment
Costs of growth
- inflation
- environmental costs (over exploitation of non renewables)
- income inequality
- financial instability
- wider trade deficit
- opp cost of producing more capital goods to boost productive capacity instead of producing consumer
- human costs ( mental health issues)
Macro objectives
- growth
- sustainability
- inflation
- low unemployment
- balance of payments
- equality
Trade offs
When one thing worsens as another improves
Low unemployment trade offs
- increase real wages
- cost push inflation
Faster growth trade offs
- demand pull inflation
- widen current account deficit
- income inequality
Policies to reduce inflation trade offs
- slow growth
- unemployment
Improving debt trade offs
- slow growth
- worsen living standards
What does Phillips curve show?
The possible inverse non-linear relationship between the unemployment rate and rate of inflation
What is stagflation?
When both unemployment and inflation are high
Define LR growth
Define SR growth
Factors that cause SR growth
any event/policy that increases components of AD
- stimulates extension in AS
- uses up some unemployed resources
Factors that cause LR growth
When the productive potential increases
- better quality FOPS
- more FOPs
- tech advances
Factors that constrain growth
- economic shocks (pandemic)
- political instability
- poor productivity growth
- lack of investment
- bad infrastructure
- shortage of human capital
Export led growth
Injections into circular flow (exports) may stimulate more injections (investment)
Balanced growth
When output and capital stock grow at same rate
Sustainable growth
- Growth that can continue in LR
- Doesn’t use up non-replaceable resources
- environmentally friendly
- doesn’t compromise future generations
Inclusive growth
- all citizens experience increase in income/living standard
- income inequality doesn’t cause some groups to miss out on benefit of growth
