2.5 economic growth Flashcards
(21 cards)
what are the 5 characteristics of a boom?
. High animal spirits increase consumption and investment.
. High economic growth measured by an increase in real GDP.
. Demand pull inflation as the price level increases.
. Low unemployment as firms demand more workers.
. An improved budget as government spending decreases and tax revenue increases.
what are the 5 characteristics of a bust / slowdown?
.Low animal spirits decrease consumption and investment.
.Low economic growth measured by a decrease in real GDP.
.Low inflation or deflation as the price level decreases.
.High unemployment as firms demand fewer workers.
.A worsened budget as government spending increases and tax revenue decreases.
define economic growth
Economic growth is defined as an increase in real GDP.
What two things can cause a decrease in nominal GDP?
Nominal GDP decreases with lower output or prices.
define nominal GDP
The total price of all goods and services produced in an economy
what is the formula for GDP per capita?
real GDP / population
what is the formula for % change in real GDP
% change in nominal GDP - inflation rate
what is the formula for GNI
real GDP + net income from abroad
define remittances
Money earned by workers which is sent home to family in another country.
what fact does the circular flow tell us?
national income= national expenditure= national output
Gross national income can also be written as:
Gross national product
Explain what is meant by the Easterlin paradox.
As income increases, happiness increases up to a point as people are able to afford important items like food and a home. However, the marginal happiness from each extra £ of income then begins to fall as people spend money on things they don’t need and which bring less happiness.
How does the UK measure happiness?
Office of National Statistics conducts a national well-being survey
define purchasing power parities
A PPP between two countries tells us how much of one currency is needed to purchase a basket of goods compared to another currency.
What are the two difficulties when comparing nominal GDP data between countries?
Nominal GDP data is usually measured in different currencies. This makes it particularly difficult to compare nominal GDP data as exchange rates are very volatile.
A second difficulty is that nominal GDP does not reflect differences between the price levels in each country. This makes it very difficult to compare as there is no way of knowing what each currency is worth in terms of the number of goods and services they will buy in each country.
what are the 5 limitations of real GDP to measure living standards?
- ignores population changes
2.ignores income distribution
3.ignores types of goods and services
4.ignores underground economies
- ignores subsistence economies
One limitation of only using real GDP is that it does not take into account changes in population. Explain why this is a problem when using real GDP to compare living standards.
If the population is growing faster than real GDP then real GDP per capita will actually be decreasing and so, on average, everyone will be worse off than the increase in real GDP suggests.
Equally, if the population is growing slower than real GDP, then real GDP per capita will be increasing by more than the increase in real GDP. This means that everyone would actually be better off than real GDP suggests.
what is the increase in LRAS caused by?
An increase in LRAS is caused by an increase in the quantity or productivity of the factors of production.
define actual growth
An actual increase in real GDP.
