2.5 Flashcards
(17 cards)
Factors causing economic growth: labour
Quantity of labour
-migration
-demography
-improved childcare
-Raising retirement age
Quality
-Education to improve skill set an efficiency making structural employment less likely - less unused resources - greater occupational immobility of labour
-More skilled workers will contribute to changes in technology, ideas, innovation
Factors causing economic growth: land
-Discovery of new resources contribute to growth
-Boost export-led growth
-e.g. saudi arabia and oil
Factors causing economic growth: capital
-Sustained investment - access and develop new technology
-More machines = more goods
However
-Some investment is unsuccessful
-Some investment does not increase GDP because of its nature - building houses
Factors causing economic growth: enterprise
-Tax benefits and grants to encourage the development of businesses, creating jobs
-Increase incentive to work
Factors causing economic growth: technology
-Average cost of production is lower
-Quicker to produce or less labour needed
-Creates new products for the market increasing consumption
Factors causing economic growth: efficiency
-Less resources needed to produce each good
-Maintain competition to reduce prices and raise quality
-Capital market must be efficient to allow access to loans
-Wars or natural distasters reduce available resources - destroy assets
Growth in SR vs LR
SR - rise in GDP from increases in AD/SRAS
LR - increase in productive capacity
Actual vs potential growth
Actual: percentage change GDP
-Economy actually produced more goods and services
Potential: change in productive potential of the economy over time - not yet produced the goods and services - difficult to measure
International trade
-AD can affect growth through export-led growth
-Prevents poor balance of payments
-Sustained high level of exports encourage firms to invest and increase demand for labour leading to economic growth
-Firms will also have to become more competitive to compete with foreign firms
Output gaps
-Difference between actual level of GDP and the estimated long term value for GDP
-Trade cycle diagram shows GDP is not always on trend
-Positive - GDP higher than tred
-Negative - GDP lower than trend - spare capacity - FOP not being fully utilised
-Difficult to measure at LRAS in unknown
-There is no single monetary value for the level of variables like machinery, workers, tech
-Structure of economy often changes
Trade cycle
-Refers to stage of economic growth an economy is in
-Goes through periods of booms and busts
-Exists because of supply and demand shocks
Boom
-National income is high
-Likely to be working above PPF
-Positive output gap
-High wages and tax revenues leading to increased consumption and investment
-Increased imports
-Inflationary pressures
Recession
-high unemployment
-low consumption/ investment/ imports
-inflationary pressures low - possible deflation
-Real GDP has fallen for atleast 2 consecutive quarters
Impact of growth on consumers
-Increased income as more people are in employment and wages increase
-Increased demand for housing - increased house prices
-Shares increase in value as businesses are making more money and future prospects are good
-Positive wealth effect
-Improved productive efficiency due to better technology - lower prices and higher quality goods for consumers
-Possibilty of increased happiness
-More confident increasing consumption and living standards
-Increased inequality - low income earners may feel worse off due to inflation
-Inflation - demand pull from higher consumer spending
-Face more shoe leather costs - spend more time and effort finding the best deal while prices are rising
-Law of diminishing returns - reduced benefits of more consumption
Impact of growth on firms
-More profits and business confidence turning into increased investment
-More investment develops new technologies to improve productivity and lower long run average costs
-Benefit from economies of scale as the firm grows
-If economic growth is in export markets firms might face more competition leading to higher productivity and efficiency
-Face more menu costs as a result of higher inflation - they have to keep changing their prices to meet inflation
-Firms selling inferior goods may lose out
-Changing technologies and globalisation leads to certain markets disappearing - DVD stores
Impact of growth on the government
-Budget might improve - fewer people require welfare payments and more people paying taxes
-If consumption of demerit goods increase then they may need to increase spending on healthcare
-People may also expect more from the government
Impact of growth on current and future living standards
-Gov has higher tax revenues to spend on improving services which could increase life expectancy and education levels
-Higher employment as labour is a derived demand
-More goods and services to enjoy
-Buy cleaner fuels
-Higher income houses tend to have less children - lowering natural rate of population growth - reducing resources necessary for future
-Exploitation of the environment - depletion of non renewable resources due to larger access to electricity
-Increased levels of pollution, waste, congestion
-Living standards for the poor may lower due to exploitation - increased inequalities
