2.5 Economic Growth Flashcards
(130 cards)
1
Q
What needs to occur for economic growth
A
Increase in quality or quantity of 1/4=< FOP
OR
FOP used more efficiently
2
Q
Any factor that increases the LRAS will also do what
A
Increase economic growth
3
Q
How can land cause economic growth
A
Discovery of new resources
4
Q
What due economists argue that developing countries grow most from
A
Exploiting new resources
(Developed countries hardly benefit)
5
Q
What has to happen to labour to cause economic growth
A
Increase in quality or quantity of workforce
6
Q
What can cause a change in the size of the workforce
A
Immigration
Demgraphy
Participation rates
7
Q
What will raising the retirement age do to growth
A
Increase it
8
Q
What can government do to increase size of workforce
A
Provide free childcare to encourage mothers to go back to work
9
Q
What can be viral to enable economic growth through providing specific skills, knowledge and desire to do certain jobs
A
Immigration
10
Q
On the whole, what can be said about the size of the workforce
A
Bigger workforce => more G&S produced
11
Q
In the long run, what is more important to change about labour than the size of the workforce?
A
The quality of labour
12
Q
How can labour quality be improved
A
Education
13
Q
What does education do to labour skill?
A
Workers are more efficient and higher skilled
14
Q
What are more skilled workers less likely to suffer from
A
Structural unemployment as they have greater occupational mobility
15
Q
What does greater occupational mobility also mean?
A
Increase output of economy as there are less unused resources
16
Q
What does more skilled workers lead to
A
Contribute to change like new tech, innovation which improves economic growth
17
Q
What happens to a country if they receive sustained investment
A
They will be able to acces or d envelop new tech to improve productivity
18
Q
What does more capital investment lead to (not just new tech)
A
More machines can be bought and used (not advancement, just higher capacity)
19
Q
Why is not all investment successful in increasing GDP
A
It may be unsuccessful or its nature may not be profitable (like building houses)
20
Q
How can government encourage development of business
A
Tax benefits and grants
21
Q
What does development of new business lead to
A
Creating jobs so more G&S produced which increases economic growth
22
Q
If there is too much wealth distribution, what happens?
A
Little incentive to work hard as the rich know their money will be taken away and the poor know they’ll be given money (instead of minimum wage working)
23
Q
What does a lack of incentive to work lead to? (Too high tax and redistribution)
A
Businesses won’t invest so little economic growth
24
Q
What does improved technology mean
A
The average cost of production is lower
25
Why can cost of production be lower due to technology
Either quicker or less labour needed
26
What does technological progress create?
New products for the market which helps drive consumption and keeps MPC high (new things to buy)
27
What would not happen if there was no increased spending
No economic growth would happen
28
What is efficiency important for
Brining in economic growth as less resources are needed to produce each good so more can be produced
29
How can government ensure efficiency is kept up
Competition so producers are forced to lower prices or increase quality to stay profitable
30
To be efficiency, what also must occur
The market mechanism
31
What happens particularly in low and middle-income countries to the price mechanism
It doesn’t work properly due to a lack of protection of property rights
32
Why does a lack of protection of property rights cause problems
People are unwilling to save and invest, inhibiting economic growth
33
What is an efficient capital market
Typically banks
34
What does no efferent capital market cause
Farms will often not have access to loans to expand their businesses
35
What happens to countries that undergo civil wars or natural disasters
Negative growth as human and physical assets are destroyed
36
In a communist society, why is there a lack of efficiency
Government is the only supplier and so is not motivated to cut costs to stay profitable
37
What happens to efficiency when governments intervene too much
Inefficiency through govenrmetn failure instead of market failure
38
How do decisions made by individuals affect economic growth
A firms decision to increase investment leads to growth
The decision is made by individuals
On firms decision is typically a tiny proportion of growth (unless its a massive firm)
39
What is actual growth
Percentage change in GDP
(When the economy actually produced more (G&S)
40
What is potential growth
Change in the productive potential of the economy over time
(LRAS or PPF shift)
41
What is the productive potential determined by
FOP so potential growth means there’s resources discovered or more tech developed that will allow for more growth
42
What do the difficulties in measuring productive potential mean
Change in GDP is used instead as a measure of growth
43
What does the PPF show
the potential output of the economy
44
What does an outward shift o fate PPF mean
Economic growth
45
If an economy moves from inside the PPF to on the PPF, what is this?
Economic recovery rather than economic growth
46
Why in practice is economic recovery not used
It is hard to know where the PPF is so economists typically treat all increases in GDP as economic growth
47
How does export led growth occur
Increased exports which is a component of AD (so shifts right)
48
Where has export led growth been effective
Germany
Japan
China
49
Why has export led growth been effective in Germany, China and Japan?
Poor balance of payments that often occurs due to economic growth
50
What does increased exports initially increase instead of LRAS
AD
51
What do sustained high export levels encourage/force
Firms to invest and increase demand for labour, causing economic growth
52
What do British firms have to do in the international market in order to be successful
Become more efficient as they are competing with more firms that in just the UK
53
What is the LR trend rate of growth
Average sustainable rate of economic growth over a period of time
Typically what happens over a long time period (average)
54
What is actual growth
Actual change over time and its changes are what make up the business cycle
55
What is an output gap
Difference between actual level of GDP and estimated long-term value for GDP
56
What is a positive output gap
Where GDP is higher than estimated
57
What is a negative output gap
Where GDP is lower than estimated
58
What happens when there is a negative output gap
Spare capacity in the economy
59
What is not being used if there is a -ve output gap
Factories, offices and workers not being utilised
60
Why is the output gap hard to measure
Exact position of LRAS is unknown
Initial estimates of real GDP are inaccurate
61
What do some economists believe about the output gap
They are SO difficult to measure that they are not a valid concept to use form the purpose of economic policy
62
Why is it not possible to measure the productive potential of an economy
There is no single monetary value for hte level of variable such as machinery, workers and technology
63
How can output gaps be illustrated
With AS and AD diagrams
64
What does LRAS show in terms of an output gap
It shows the full capacity output where all resources are being fully utilised
65
What does an equilibrium to the right of the LRAS show
That the economy is working over capacity in the short term
66
What does LRAS show in terms of an output gap
It shows the full capacity output where all resources are being fully utilised
67
What does an equilibrium to the left of LRAS show
The economy working under capacity
68
What do classical economists argue when equilibrium is to the right of LRAS
That the positive output gap would be filled by LR economic growth moving the LRAS curve
69
What do classicists argue would happen to a negative output gap
It would be brought back to equilibrium by rising AD or a fall in SRAS due to lower costs of production
70
What is the trade cycle
Teh periodic but irregular up and down movements in economic activity
71
What is the trade cycle measured in
Fluctuations in real GDP and other macroeconomic variables
72
What are the 4 main phases of the business cycle
Boom
Downturn
Recession
Recovery
73
What are the definitions of each stage of hte business cycle
No set definition of each and people often refer to the cycle as boom and recession
74
What are the 2 names for the simple stages of the business cycle
Recession (slump) and recovery
Boom and downturn
75
What are the two main types of the trade cycle
Mild trade cycle
Extreme trade cycle
76
What is the mild trade cycle
GDP does not gall during recessions but instead just doesn’t grow as much as the trend
77
Why does the trade cycle exist
Demand and supply side shocks
78
What are demand side shocks
Collapse of the housing bubble
Political issues
Changes in exchange rates
Recession in world economy
79
What are supply side shocks
Trade union action
Change in oil prices
Change in exchange rates
80
What can shocks be?
Positive or negative (so cause a boom or recession)
81
What is national income like during a peak of an economy (boom) and what else happens
NI should be high
Economy above the PPF (+ve output gap)
82
What happens to AD and gov revenue during a boom
C and I are high
Tax revenue is high
Wages are high
83
What happens to imports during a boom to meet demand of high-income consumers
More imports as demand cannot be met by domestically produced goods
Causes inflationary pressure
84
What happens during a downturn
Economy begins to move from boom to recession
Output and income fall leading to fall in C and I as well as tax revenue
85
What happens to benefit payments during a downturn
They increase as unemployment rises
86
What happens to wages during a downturn
They decrease as people begin to accept jobs at lower wages due to the high unemployment
87
What happens to inflation during a downturn
Increases due to pressure to ease a fall in number of imports.
88
What is the economy it at the bottom of the business cycle
A slump/trough/depression/recession
89
What does high unemployment in a recession cause?
Low consumption, investment and imports
90
What happens to inflationary pressure during a recession
Low and there may even be deflation
91
What is a recession
Where real GDP falls in 2=< successive quarters
92
What happens post recession?
A recovery/expansion phase
93
What happens during an expansion phase
National income and output increase
Unemployment falls
C I M increase
Inflationary pressure due to wage increase demand
94
What are the problems with recessions and booms
Unemployment causes lower standard of living (SoL) even though its temporary
Real wages fall in a boom (inflation)
95
What is hysteresis
Economies do not bounce back to their previous trend level of growth
96
Why may an economy not ever fully recover from a deep recession
Permanent loss of labour
97
Why may there be permanent loss of labour post recession
Early retirement if made redundant
Lost skills
Discouraged
98
Why may there be a loss of physical capital post recession
Firms may not make up for investment which was cut back on so there would be a fall in potential output
99
Why can economic growth be bad for consumers (housing market)
More money
Leads to
More demand for housing
Leads to
House prices rising
100
Why can economic growth be bad for consumers (share prices)
Businesses make more money
So
Shares increase in value
101
What do increasing house prices and increased stock values cause
Positive wealth effect
102
What happens to consumers from better technology?
Improved productive efficiency
Leads to
Lower prices or higher quality goods
103
What do some argue economy growth will lead to?
Increased happiness but this may not be the case
104
What may economic growth cause (not happiness)
Increase inequality so may not benefit the average consumer and lead to inflation (-ve impact)h
105
What will firms do during a period of economic growth
They earn more so have more to invest
Higher confidence leads to more investment
106
Why does technology improve during a boom
Increased investment from both businesses and government
More R&D
107
How does better tech improve the economy
Increases productive efficiency and lowers costs
108
What leads to higher profits during a boom
Lower costs
Higher demand
109
Who does economic growth provide opportunity for
New firms to establish themselves
Existing firms to make more profit
110
Who loses out in a boom
Firms that sell inferior goods (-ve YED)
Obsolete technology like DVD rentals
111
Why does tax revenue increase during a boom
More G&S being ough so more income and more profit
112
What can government do with increase income
More to spend on NHS, education, benefits etc.
113
What does government spending lead to
Improving SoL
114
What other thing can government do with increased income during a boom?
Reduce the budget deficit (even create a surpluses for another recession)
115
What is the problems for government with public expectation during a boom
People expect more from the government
Like better roads, education etc.
116
What does economic growth do to poverty levels
Decreases them as there are more jobs so less unemployment and less people on benefits
117
What happens to G&S during a boom
More of G&S so poor can get what they need,
not just rich getting what they want
118
What happens to quality of housing and food in a boom
Increased housing standards
Increased food quality
119
What happens to health with economic growth
Increased life expectancy
Higher quality of life in old age
120
How does increased government spending improve people lives during economic growth
Improved SoL both at current and in future
121
What does better education from increased government spending lead to
Better SoL
122
Where does economic growth have the highest benefit
In developing countries
123
Why can there be a decrease in SoL during economic growth
Environmental exploitation
124
What does a rise in income lead to (electricity)
More free usage
Non-renewable resource depleted
Not sustainable growth
125
What can be argued that opposes the concerns about growth not being sustainable?
Higher incomes lead to research into cleaner fuels
Resources devoted to R&D for greener and more efficient tech
126
What happens in higher income households (children)
Less of them so lower rate of population growth so less future resources needed
127
What is another cost about economic growth (disparity of wealth)
Increased inequality
Only rich benefit, they exploit the poor and the poor’s SoL decreases
128
What is a growth pessimist
Those who question LR sustainability of growth
Sustainable resources will be destroyed due to Tragedy of the Commons
129
What is the tragedy of hte commons
If something is public, no one looks after it so the quality decreases
E.g. destruction of rainforests
130
How does economic growth have microeconomic consequences
It impacts on consumers, workers and firms
It leads to increased efficiency
