2.5 Economic Growth Flashcards
(23 cards)
What is economic growth defined as?
The expansion of the productive potential of the economy.
How is economic growth depicted on graphs?
By an outward shift in the PPF or an outward shift in a country’s LRAS curve.
How is economic growth measured?
By the annual change in real GDP.
What factors cause economic growth?
Improvement in the quantity or quality of factors of production or increased efficiency in their use.
What are some examples of factors that can lead to economic growth?
- Improving the labour force through higher education
- A larger labour force due to migration, birth rates, or improved participation
- Improved technology for more productivity
- Increased investment in machinery
- Discovering new resources
- Incentives for enterprise like tax breaks or subsidies
What is actual growth?
The percentage increase in a country’s real GDP, usually measured annually.
What is potential growth?
The long run expansion of the productive potential of an economy.
What is export led growth?
When countries open up their economies to the international market.
What is comparative advantage?
When a country can produce goods and services at a lower opportunity cost than another.
What is an output gap?
The difference between actual output and potential output.
What is a negative output gap?
When actual output is less than potential output, leading to unemployment of resources.
What is a positive output gap?
When actual output exceeds potential output, often putting upward pressure on inflation.
What are some difficulties in measuring the output gap?
- Estimating trends in data
- Changes in the economy’s structure
- Reliability of data, especially from emerging markets
- Extrapolating data from past trends may lead to uncertainties
What does the business cycle refer to?
The stage of economic growth that the economy is in.
What are the characteristics of a boom?
- High rates of economic growth
- Near full capacity or positive output gaps
- (Near) full employment
- Demand-pull inflation
- High consumer and firm confidence
What defines a recession in the UK?
Negative economic growth over two consecutive quarters.
What are some characteristics of a recession?
- Negative economic growth
- Lots of spare capacity and negative output gaps
- Demand-deficient unemployment
- Low inflation rates
What are the benefits of economic growth for consumers?
- Increased average consumer income
- Higher confidence in the economy
- Higher living standards
What are the costs of economic growth for consumers?
- Higher demand-pull inflation
- More shoe leather costs due to rising prices
- Inequality might increase
What benefits can economic growth provide for firms?
- Increased profits leading to more investment
- Development of new technologies
- Economies of scale
What are the potential costs of economic growth for firms?
More menu costs due to higher inflation.
How might economic growth affect government budgets?
Governments may see improved budgets due to higher tax revenues and less spending on welfare.
What are some potential negative impacts of economic growth on the environment?
Increased negative externalities from consumption and production.
