2.5 economic growth Flashcards
(19 cards)
factors that can cause economic growth (6)
improving labour force skills
increasing size of labour force
improved tech
more investment
discovering new resources
incentives
difference between actual and potential growth
Actual growth is the percentage increase in a country’s real GDP and it is usually
measured annually
Potential growth - long run expansion of productive potential in an economy - what economy could output if all resources are fully employed
importance of international trade for export lead growth
countries can specialise in producing a certain good gaining a competitive advantage - encourages firms to invest increasing supply side of an economy - X-M surplus - injections into the economy
however counties rely on foreign spending
actual growth rates vs long term trends in growth rates
actual growth is the % increase of a countries GDP measured annually
long term trend in growth rates is the long run expansion of the productive potential of an economy what an economy could produce if resources are fully employed
what is an output gap and how is it measured
difference between actual and potential levels of output - measured as a % of national output
positive output gap
actual level of output is greater than the potential level of output
resources being used above full capacity
upwards inflationary pressures - rapid growth
negative output gap
actual level of output is less than potential level of output
downwards pressure on inflation
lots of spare capacity and unemployment of resources
difficulties measuring output gaps
data is not always reliable
changes in exchange rates may offset inflationary effects
hard to make estimations as structure of economy often changes
business cycle
the stage of economic growth that a business is in
boom - slump
recession - reocvery
characteristics of boom
high rates of growth
demand pull inflation
more gov revenue
near full capacity
high confidence
characteristics of recessions
negative economic growth over 2 or more consecutive quarters
negative growth
spare capacity
demand side policies - monetary/fiscal
gov budgets worsen
low confidence
benefits of economic growth on consumers
more confidence
higher wages
better living standards
negatives of economic growth on consumers
inequality increases - those on fixed incomes
demand pull inflation - rise in price
high consumption my not last - diminishing marginal returns
benefits of economic growth on firms
make more profits
more innovation leading to lower costs
economies of scale
more competitive internationally w/ new low prices
negatives of economic growth on firms
have to keep changing prices to keep up with inflation - time consuming, inaccurate
benefits of economic growth on the government
gov budget may increase because gov receives more tax as more people are working and can pay less welfare payments
negatives of economic growth on the government
may have to increase spending on healthcare if the growth leads to people spending money on demerit goods.
positives of economic growth on current and future living standards
more concern about the environment - more sustainable business practices
people can enjoy higher quality goods - better quality of life
public services improve
negatives of economic growth on current and future living standards
high levels of growth could lead to damage to the environment in the long run
