Economic Cycle and growth Flashcards
(30 cards)
What is short run economic growth?
growth based on increased utilisation of unemployed resources
What is long run economic growth?
growth based on increasing the potential output level of the economy
what does short run growth involve?
moving from within PPF onto PPF
What does Long run growth involve?
expanding economy shifiting whole PPF outwards
What can short run growth be cuased by?
- increase in AD
- increase in SRAS
How does long run growth occur?
due to improvements on the supply side of economy, resulting from quantity and quality of the factors of production
What are the factors that would increase LRAS?
- increase in labour force
- imporvements in labour productivity
- capital investment
- new tech
- education
- gov policy
labour force effect on LRAS?
- making working more attractive through lower unemployment benefits or cutting income tax
- more in work, higher productive capacity
How does improvements in labour productivity effect LRAS?
- increase in skills level of workforce, increase in amount produced
capital investment effect on LRAS?
- more investment, able to produce more goods
what is economic cycle?
the repeated pattern of fluctuations in short-run economic growth and how it differs from the trend growth of the economy
What are the four parts of economic cycle?
boom, downturn, recession, recovery
what is a boom?
short run economic growth is above trend growth rate
characteristics of a boom?
- consumer confidence will be high with consumer spending rising quickly
- business confidence is high (high investment)
- gov finance heading toward budget surplus
- current account moving towards deficit or more into
- low unemployment
- inflation may be rising
What is a downturn?
rate of short run growth will start to fall but may still be positive
Characteristics of a downturn?
- business confidence will fall, investment falling
- consumers reducing amounts borrowed in finance
- growth in consumer spending slowing
- inflation may still be above average but not rising
- tax revenue may begin to fall due to reduced economic activity
What is a recession?
two consecutive quarters of a year where short run economic growth is negative
characteristics of recession?
- business confidence low
- investment low
- falling consumer spending
- unemployment will rise and may reach high levels
- inflation should fall
- budget deficit at its largest
What is recovery in the economic cycle?
where short run economic growth starts to increase after a recession
characteristics of a recovary?
- returning consumer and business confidence
- inflation is likely to remain low
- unemployment remaining high
- budget deficit should stop increasing
What is an output gap?
the difference between actual growth and trend growth
What is a positive output gap?
actual growth is higher than trend growth
What is a negative output gap?
- exists where actual growth is below trend growth
When is unemployment likely to rise (output gaps)?
when output gap is negative as there are unemployed factors
