2.5 Economic Growth Flashcards
(15 cards)
economic stagnation
slow economic growth
Stagflation
A period where a country experiences slow or negative economic growth, high unemployment, and high inflation at the same time
Stagnation + inflation
Meaning worst of both worlds, against Phillips Curve
Reflation
rise in GDP occurring in a recession
Gross Domestic Product (GDP)
The total market value of all goods and services produced within the nation’s borders, over a period of time
at market prices, so includes VAT, so GDP will be higher than actual national income
Gross Value Added (GVA)
GDP - indirect taxes on products
So the overall what they add to the value of the product
Gross National Income (GNI)
GDP + net overseas income through primary income
- e.g dividends, interest rates
Gross National Product (GNP)
The total value of all goods and services produced by the country’s residents, no matter where they are making this money.
Excludes money made by foreigners in the country
Net National Income
National Income - depreciation
Actual growth
‘short term growth’
the real growth in quantity of goods and services
expands AD and ppf point
Potential growth
‘long term growth’
change in productive potential of economy
expands LRAS and ppf curve
Hysteresis
when economy doesn’t fully recover from a recession
shifts trend rate of growth, due to permanent loss of human and physical capital
as people who lost their jobs may not of got them back etc.
GDP still rises overtime, but slows down the rate
Sustainable growth
growth in the productive potential that doesn’t use non-renewable resources
growth that can sustain without having to finance growth with additional equity or debt
What are automatic stabilisers?
Non-discretionary Fiscal policies to influence GDP and counter fluctuations in the economic cycle
Using:
- Progressive tax system to decrease AD when booming
- Welfare benefits to increase AD whilst recession
Both are in place at all times, but only become effective when their time comes
- so they automatically stabilise the economy
Why Stop an Economic Boom?
Control Inflation
- Prevents demand-pull inflation (e.g., UK 2022: 10.1% inflation).
Avoid Bubbles
- Stops unsustainable growth (e.g., US housing crash 2008).
Reduce Trade Deficits
- Curb over-importing (e.g., UK’s £32bn deficit, 2024).
Limit Debt Risks
- Prevents reckless borrowing (e.g., Sri Lanka’s 2022 default).
Smooth Cycles
- Keynesian stability (e.g., Fed rate hikes 2023).
What’s the difference between Discretionary vs. Non-Discretionary Fiscal Policies?
Discretionary are deliberate tax/spending changes (new laws needed)
Examples: UK’s 2024 CGT hike, US COVID stimulus
Slower but targeted
Non-Discretionary are automatic responses (built-in)
Examples: Progressive taxes, unemployment benefits
Faster but limited
