4.2.3.1. Economic Growth and the Economic Cycle Flashcards
(8 cards)
1
Q
Short Run Economic Growth Definition
A
Actual annual % change in RNO
2
Q
Long Run Economic Growth Definition
A
Increase in Productive Capacity
3
Q
Determinants of Long Run Economic Growth
A
- Investment in capital goods
- Innovation - products and processes
- Migration - Immigration leads to greater productive capacity
- Changes in Birth Rates
- Increase in Productivity
- Export-led Growth
4
Q
Output Gap on an Economic Cycle Model
A
The difference between the trend rate and the actual rate of economic growth.
5
Q
Recession Definition
A
Real GDP falls for 2 quarters (6 months) consecutively
6
Q
Economic Slump Definition
A
Sustained low or negative growth, with low demand and inflation, high unemployment, low confidence and high levels of business failure
7
Q
Economic Recovery Definition
A
Economic growth starting to rise, demand increases, unemployment falls, inflation starts to rise, increasing confidence and increasing capital investment
8
Q
Why does the Economy Cycle?
A
- Excessive growth in credit and levels of debt, as growth financed by debt may not be sustainable.
- Asset price bubbles occur when the price of the asset is predicted to rise causing it to be traded more. This bubble bursts when the price steeply and suddenly falls to its ordinary level, causing panic selling
- Destabilising speculation and Animal Spirits, instincts and emotions of human behaviour which drive confidence in an economy
- Herding, reacting to the behaviour of other economic agents rather than the market
- Exogenous Shocks and the Multiplier-Accelerator Model, sudden changes to the demand or supply of the economy
- Inventory Cycle, changes in inventory levels held by businesses may lead to exaggerated increases or decreases in output
