2.5 Economic Growth Flashcards
(11 cards)
What is actual economic growth?
The percentage increase in real GDP over time, reflecting an increase in output.
What is potential economic growth?
The increase in the productive capacity of the economy, shown by a rightward shift in LRAS or outward shift in the PPF.
What is the trend rate of growth?
The long-run average rate of growth of an economy’s output, based on changes in productive capacity.
What is an output gap?
The difference between actual GDP and potential GDP.
What is a positive output gap?
When actual output is above potential output — usually temporary and associated with inflationary pressure.
What is a negative output gap?
When actual output is below potential output — indicating spare capacity and high unemployment.
What is the economic cycle (business cycle)?
Fluctuations in real GDP over time — consisting of four phases: boom, downturn, recession, recovery.
What are characteristics of a boom?
High growth
Low unemployment
Rising inflation
Strong consumer and business confidence
High tax revenue
What are characteristics of a recession or downturn?
Low or negative growth
High unemployment
Low inflation or deflation
Low confidence
Increased government spending on welfare
What are the benefits of economic growth?
Higher living standards
Lower unemployment
Higher tax revenue
Reduced poverty
Increased investment and innovation
What are the costs of economic growth?
Demand-pull inflation
Environmental damage
Widening income inequality
Current account deficit
Overuse of natural resources
