8.Economic performance. Flashcards
How is economic growth measured?
By the percentage of annual change in real GDP.
What factors influence economic growth?
Demand-side policy- anything which shifts the position of aggregate demand.
Supply-side policy- anything which shifts the position of the SRAS or LRAS curves.
If any of the components of AD increase at low levels of real income on the SRAS, what happens to the price level and why?
The shift has little effect on price because there is lots of spare capacity in the economy. (Far left of the LRAS curve).
What happens to price level and real output if AD rises as the SRAS slopes upward?
The shift in AD means that real output will increase as well as price level because there is not much spare capacity in the economy.
What happens to LRAS if full capacity is reached, in order for sustainable economic growth to continue?
The LRAS curve must shift rightward, done by improvements in technology, productivity, etc.
Define trend growth.
Trend growth is the rate of growth which is sustainable without putting upward or downward pressure on inflation.
Describe the difference between trend output and actual output.
Trend- what the economy is capable of producing.
Actual- the level of real output produced.
Describe the relationship between trend output and actual output.
If trend output is greater than actual output, then there is a negative output gap.
If actual output is greater than trend output, then there is a positive output gap.
List 2 main factors which cause a change in the economic cycle.
- supply-side policies
- demand-side policies
Define an economic cycle, and how it is measured.
An upswing and downside in aggregate economic activity taking place over 5-15 years.
It is measured by changes in real output.
List 5 benefits of economic growth.
- increases standard of living and welfare.
- provides new and environmentally friendly technologies.
- reduces poverty.
- greater confidence.
- increased investment.
List 5 costs of economic growth.
- uses up finite resources.
- can lead to pollution.
- widen inequalities regarding distribution of wealth.
- lead to rapid population growth
- increases urbanisation.
When is there unemployment and deflation risks
When there is a negative output gap.
What are the problems with a positive output gap?
It leads to upward pressure on inflation and a widening trade deficit.
List the 5 types of unemployment.
Cyclical- by decreased demand (fall in AD).
Frictional- by workers moving between jobs.
Seasonal- caused by changes in the time of year and its effect on demand.
Structural- by a decline in industry.
Classical- by not accepting lower wages.
