2.5 Flashcards
(13 cards)
How can economic growth occur?
An increase in quality or quantity of one of the four FoPs
-Land
The discovery of new resources
-Labour
Size of the workforce. The larger the workforce the more goods produced
Quality of the workforce
-Enterprise
If government offers tax benefits, they’ll encourage development of business
-Technological process
Average cost of production is lower
Creates new products to the market so consumption increases
-Efficiency
Less resources are needed to produce each good so more goods can be produced
Why is international trade important for economic growth?
Its where many economists can argue that AD can affect economic growth, through export-led growth
-As exports rise AD rises
-Sustained high export levels will encourage firms to invest and increase demand for labour, which will lead to economic growth
What is the difference between actual growth and long-run growth?
Long run trend growth is the average rate of economic growth over period of time
Actual growth is the actual change over time
The difference between long run trend growth and the actual growth is called an output gap
What are output gaps?
The difference between actual level GDP and estimated long term GDP
-A positive output gap is when GDP is higher than estimated
-A negative output gap is when GDP is lower than estimated. This means there will be spare capacity in the economy with FoPs not being utilised
When is there positive and negative output gaps?
Positive - when AD and SRAS meet ahead of the LRAS curve
Negative - when AD and SRAS meet behind the LRAS curve
What is the trade cycle?
Periodic but irregular up and down movements in economic activity
Characteristics of a boom
-National income is high
-Positive output gap
-Consumption and investment increase
-Tax revenue and wages increase
-Rise in imports
-Inflationary pressure
Characteristics of a recession
-High unemployment which causes low consumption, investment and drop in imports
-Low inflationary pressure
What impact does the trade cycle have in a recession?
Consumers will see lower incomes and living standards
Firms will see lower revenues and profits
What is the impact on consumers of economic growth?
-Increase in demand for housing as people have more money to buy properties which will increase house prices. This will increase wealth which leads to a positive wealth effect
-Improved productive efficiency due to better technology could lead to lower prices and high quality of goods/services produced
-Some may argue leads to increased happiness
-May lead to inflation
What is the impact on firms of economic growth?
-Investment will increase since businesses are more successful so business confidence will improve. Due to this technology will improve as RandD will take place so firms will use productive efficiency to lower costs
-Firms who sell inferior goods may miss out. Changing technology / globalisation means some firms find their markets disappearing
What is the impact on the government of economic growth?
-Tax revenue will rise so the government have more money to put into NHS, education etc so living standards improve
-Helps reduce the budget deficit
-People may expect more from the government after this
What is the impact on living standards due to economic growth?
-Results in low poverty levels as rise in production of goods and services means more jobs are available so unemployment decreases
-More goods and services for people to enjoy
-Housing standard, health and food quality increases
-Rise in government spending improves living standards
-Could result in larger gap between rich and poor if the rich exploit the poor
-Could cause exploitation of environment as people can use electricity more freely which causes depletion of non-renewable resources
